Sector Spotlight - Retail: Evaluating Stocks During the Retail Apocalypse

Maile Clark and Rob Almeida discuss the potential long-term opportunities for differentiation in the retail industry.

 

 

NEW Title: Sector - Retail  / Evaluating stocks during the retail apocalypse

 

Abstract:  MFS Equity Analyst Maile Clark and Institutional Portfolio Manager Rob Almeida discuss how retailers can survive and compete in an increasingly competitive environment.

LinkedIn: What should investors look for in the retail sector? Here's a hint: We don't think what worked in the past will work in the future. Watch this video featuring MFS Equity Analyst Maile Clark to learn more.

 

 

Rob Almeida:

So Maile, in your paper you talked about the number of apparel units, the growth in apparel units, per capita. I think it was something like in 1990, 50 units per person versus today, 85, 90. Why the growth in apparel units?

 

Maile Clark:

The phasing out of quotas when trying to join the World Trade Organization 20 years was really the impetus for the long run that we've seen in apparel deflation. At that time, the percentage of apparel that was imported into the United States was under 70% and today it stands at 98%.

 

So, essentially, when quotas were phased out, the cost of apparel in the United States declined precipitously over a very long 20 year period, and subsequently, the demand increased. As you point out, it went from 50 new units per capita consumed per year, to 85 new units.

 

 

[Graphic to illustrate talking point only]

 

 

 

That means that, on average, every man, woman and child in the United States consumes 85 new garments every year.

 

Rob Almeida:

And this was largely what resulted in just a gross over storing of the United States.

 

Maile Clark:

Yes.

 

Rob Almeida:

In general.

 

Maile Clark:

Exactly. So there were so many more units consumed that it really precipitated a monstrous rise in the number of stores that we have. And now we find ourselves in a position where we have a massively over stored retail universe versus anywhere else in the world where, versus a lot of other developed countries, we have 10 times the amount of per capita retail square footage.

 

 

So the paradigm has shifted, and it's more about who can use the units they have in a more productive way. Who can own the customer more? Who can own more share of wallet. Who can adjust their margins in a way that they can survive a higher capital barrier into the industry? So, I think the job of a retail investor has changed a lot. And I think it's not just about chasing unit growth and penciling out new store returns. It's about capitalizing on these differentiations, which is very, very different than it's been at any time in my career.

 

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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