The Retailer Amazon Can't Take Down
Last Saturday night at around 10 p.m., my sons and I decided to watch a movie in our home theater.
Before we put on the movie, one of my boys went into the kitchen and searched the cupboards for Coke Zero, the soda of choice in our home.
It looked like we were out of it, but “no worries,” as he ordered a 12-pack on Amazon Prime Now. Before he was through, he also ordered ice cream, M&Ms, and Lay’s Potato Chips.
While I’ve been a Prime customer since the moment Amazon launched the service back in 2005, I wasn’t too familiar with Prime Now.
What I experienced less than two hours later made me seriously rethink how brick-and-mortar retailers will survive in the next five years.
Prime Now offers two-hour free delivery for select groceries, household essentials, and a host of other products.
By 11:30 p.m., we were eating ice cream, sipping soda, and eating potato chips. This was simply amazing.
The 800-Pound Gorilla
While my sons took this all in stride, I marveled at the distribution, logistics, and everything else that went into having something delivered on a Saturday night close to midnight.
Over the past decade, Amazon has destroyed the profit margins and business models of brick-and-mortar retailers across the U.S.
The market value of Amazon, as of Dec. 31, 2016, was $356 billion... That is more than the combined market value of Wal-Mart, Target, Best Buy, Macys, Kohl’s, Nordstrom, J.C. Penney, and Sears ($298 billion).
Over the past 10 years, big box and department store sales have been in a downward spiral. In 2006, they had retail sales of $252 billion, and at the end of 2016, sales plunged to $157 billion — a decrease of 38%.
Sears, J.C. Penney, Kohl’s, Macy’s, and Best Buy have lost more than 50% of their market value during that same period.
If a retailer doesn’t have an Amazon strategy, it will soon be out of business.
Jeff Bezos, founder of Amazon, boldly said to competitors, “Your margin is my opportunity.” No business is safe.
The retail sector has gotten so bad that after a recent conference this past January, Wells Fargo’s stock analysts said that the retail sector is “uninvestable.”
They did point out a few names that were the exception — and one of them was a company we’ve had in our portfolio for some time now.
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A Gem of a Retailer
While retail has always been a tough business, a few years ago we identified one retailer that, after careful analysis, we believed could compete in the world of Amazon.
Since we added TJX Companies (NYSE: TJX) to our portfolio in the summer of 2010, it has continued to move higher — up more than +319%.
While the market value of other retailers has shrunk, TJX’s has increased. In 2006, the market value of TJX was $13 billion... Today, it is close to $50 billion — an increase of close to 3x.
We continue to hold TJX in our portfolio, as well as several other stocks that we’ve owned for a while that are all up triple digits.
Each month, we sift through the dozens of stocks and only recommend the ones we find that are trading for pennies on the dollar.
Since I’ve spent a good part of my life on Wall Street, I recall an old timer telling me that a “stock bought right is half-sold.”
In other words, if the purchase price is made low enough, the profits will take care of themselves.
I am now looking at a few stocks that have the potential to be the next TJX in their industry.
Regardless of market conditions, our game plan is simple: buy financially sound companies when they are trading at bargain prices.
And that’s what I’ve been sharing with my readers for almost a decade.
To join us in our hunt for value, click here.
All my best,
Charles cut his chops on the trading floor of the New York Futures Exchange before moving on to become a wildly successful money manager on Wall Street.
And with more than 35 years of recommending stocks under his belt, Charles has knocked the cover off the ball, compiling an amazing record of success and posting gain after gain for his loyal readers. He is the editor of Park Avenue Investment Club and the Insider Alert newsletters.
Charles is also the author of the highly acclaimed book, Getting Started in Value Investing.
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