Sector Spotlight - Retail: Cross Currents in the Retail Industry

Maile Clark and Rob Almeida discuss the shifting retail landscape.

Title: Sector /Retail  – Cross currents in the retail industry

Abstract:  MFS Equity Analyst Maile Clark and Institutional Portfolio Manager Rob Almeida discuss the shifting retail landscape as consumers shop more online and less at traditional brick-and-mortar stores.

LinkedIn:  How can a business survive the retail apocalypse? To find out, watch this video featuring MFS Equity Analyst Maile Clark.

 

Rob Almeida:

Hello, my name is Rob Almeida, I'm an Institutional Portfolio Manager here at the firm, and I'm joined by MFS Research Analyst Maile Clark. Maile, so walk us through a little bit about what you do here at the firm.

 

Maile Clark:

I've been an Equity Analyst at MFS since 2005, primarily covering retail stocks. I've actually been on the buy side since 1995, primarily covering retail and consumer stocks through that time.

 

Rob Almeida:

So, you've been analyzing retail stocks for over 20 years. Is it fair to say that there's a paradigm shift, a tectonic change in retailers in general versus maybe when you started or just 10 years ago?

 

Maile Clark:

Oh, certainly. There's never been more cross currents than there are in the industry versus right now. Many large retailers are struggling to adapt to a changing world. The internet has allowed companies to add capacity to an over stored industry at an unprecedented pace. At the same time, customer preferences are shifting and that's creating a lot of cross currents. And e-commerce sales are rising very quickly. And so far e-commerce is up to about 10% of overall retail sales in the United States.

 

Rob Almeida:

Now, 10%. It feels like it would be much higher. I think about my house, there's a box coming every other day, it seems like. Where do you think that should be? Or where will it be?

 

Maile Clark:

Over time, it will generally be much higher. The 10% you're seeing is over all of retail. It's very different by category. So if you look at something like electronic books, it's obviously the entire category. There's certain categories like grocery that are much, much lower. The 10% is really representative of all of retail.

 

Rob Almeida:

So, given that, where are the mall rats going to go?

 

Maile Clark:

I recently met with a teen retail company and they let us know that a lot of teenagers are still going to malls. What I think it's really important to understand is that stores are not going away. What is rising is omni channel. The consumer preferences are shifting, and they want to be able to shop in multiple places. Not just in stores, not just online, but both.

 

 

So, for instance, many retailers have told us that when stores close in a single store market, they actually see their e-commerce business go down and not up. So it is an omni channel world, and consumers do want to shop in multiple formats.

 

 

Cheap real estate and the rise of apparel units per capita consumed has really allowed there to be a lot of retailers that don't have a special reason to exist. And that all changes if the industry is more difficult. So it's becoming more and more important for retailers to to have a niche, have a differentiation, to have a reason for the consumer to come specifically to them to shop.

 

Rob Almeida:

In other words, companies with intellectual property.

 

Maile Clark:

A differentiation, exactly.

 

Rob Almeida:

Yeah, a differentiator. So those with a differentiator have survivorship potential, and earnings potential, and growth potential, and alpha potential, return potential. Those without it perhaps are over-earning and may disappoint investors. Is that fair?

 

Maile Clark:

May not have a reason to exist.

 

Rob Almeida:

 

Maile Clark:

Right.

You have to be special and different. More special and more different than you've ever had to be because there's more capacity in the industry than there's ever been.

 

The views expressed are those of the speakers and are subject to change at any time. These views are for informational purposes only and should not be relied upon as a recommendation to purchase any security or as a solicitation or investment advice from the Advisor.

 

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