Whether “Retail” Investments ?

The Retail sector is in a state of flux that will last many years. We’ve recently experienced big investor problems with retail companies as diverse as Circuit City, Sears, Barnes & Noble, J.C. Penney and Radio shack. All retail is changing; Brick and Mortar stores are struggling to compete with internet sales.

Simply put, there are way too many stores and in general the large Malls are rapidly losing ground. Even the Internet sales giant Amazon can see a problem building with Alibaba. The little investor wanting to avoid excess risk in this sector might consider Home-Depot or Lowes but they hover close to their historic high prices. I think that our retail community of companies shrinks by half in the next decade. Of course some retail will prosper but picking the gold out of the dung will not be easy. If you don’t think that retail is changing ask the nearest 20 year old what percentage of their purchases are through the internet.

By the way, As I write this on August 5th 2015 Radio Shack went into bankruptcy. The CNBC coverage of this expected event stated that Radio Shack had 4063 stores and it was questionable if they would attempt to exit bankruptcy; wow, over 4K stores and they may just fold up as Circuit City did. The CNBC coverage then went on to say that Amazon was interested in buying the stores from Radio Shack.

You don’t have to be a Business Major to see where this might be going. Just picture an Amazon showroom for TVs or Refrigerators. The customer would pick out an appliance and pay Amazon. The Fridge would simply ship from the Whirlpool factory and Independent Contractors working for the Amazon store would install it. The item would be in Amazon’s inventory for at most a couple of days to delivery. Think about it, the largest expense of an Appliance store is inventory and Amazon has the money in hand before the goods hit their books as inventory. That would be pricing power.
Ok, so what are the general types of investments with less risk? I like companies that are able to plot their profits because they are part & parcel of modern life. The credit card titans like Visa, Mastercard and American express come to mind. They have pricing power and have kinda a troika of profit. Insurance companies and some banks also qualify due to our very cheap money supply.

I guess that established “service” companies that occupy the upper tier of their industry qualify. If your company has no inventory and essentially takes a commission on a sale then by definition it is a transfer agent incurring cost only when booking a sale. Disclaimer, I currently hold positions in Aflac, P&G, Altria, Merck, AT&T, Bank-America, Visa, Lowes, Pfizer, Brinker International, Wells-Fargo and Walgreens and am well into the money with them all.