The retail landscape has been undergoing a fundamental change with technology playing a major role and the focus shifting to online shopping. This shift in buying pattern has compelled retailers to come up with innovative ways to market their products. Retailers who have responded quickly to it by staying ahead technologically stand in good stead. Be it department stores, discount retailers, supermarket chains or grocery players, all are in the race of survival of the fittest.
A Look at Economic Backdrop
Americans are way more confident now, brushing aside recent hiccups like the U.S.-China trade concerns, higher gasoline prices and tightening of monetary policy.
Thanks to a robust job market as evident from the fall in the number of people claiming unemployment benefits and jobless rate hovering at an 18-year low. This along with tax reform and sound economic fundamentals are likely to boost consumer confidence, which rose close to 18-year high in May. We expect this positive sentiment to translate into higher consumer spending — one of the pivotal factors driving the economy. Per industry experts, second-quarter GDP rate likely to come ahead of 4%.
Notably, U.S. retail and food services sales in May advanced 0.8% to $502 billion, following an upwardly revised reading of 0.4% gain in April, per the Commerce Department. Meanwhile, retail sales improved 5.9% from May 2017. Moreover, National Retail Federation’s projection of an uptick in U.S. retail sales of 3.8-4.4% this year raises optimism.
How is the Retail-Discount Industry Placed?
Pick up in retail sales is welcome news for retailers, whose fortunes depend upon consumers’ willingness to spend. Certainly, this Zacks Retail-Discount Industry has borne the brunt of heightened online competition. Nevertheless, retailers are fast adopting the omni-channel mantra to provide a seamless shopping experience, whether online or in-stores. However, can technology alone help retailers survive Amazon’s (AMZN) growing dominance in the ultra-competitive retail environment?
We believe that unhealthy price competition to gain market share and attract footfall might weigh on the industry’s margins, which occupies a which occupies bottom 24% position in the list of Zacks industries (195 out of 256). Further, rise in costs due to new fulfillment options and incremental wages are the primary headwinds plaguing the industry.
However, the recent ruling Supreme Court ruling that allows states to collect sales tax from online purchases even if a company doesn’t have any physical presence in that state may provide some respite to discount retailers, who have been playing dual in-store and online role. But competition will continue to remain stiff going forward and this might hurt profitability.
Nevertheless, there are few stocks which have outperformed the industry’s growth of 5.5% in a month.
The Three Musketeers
Burlington Stores (BURL - Free Report) has made multiple changes to its business model to adapt to the ongoing transformation in the sector. Notably, it has increased vendor counts, made technological advancements and initiated a better marketing approach. These along with effective inventory management and cost containment efforts have helped bolster the gross margin. The Zacks Consensus Estimate for current fiscal year has increased 2.7% to $6.04 in the past 30 days. Shares of this Zacks Rank #2 (Buy) company have jumped 11.4% in a month. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Ross Stores’ (ROST - Free Report) commitment toward better price management, merchandise, cost containment and store expansion plan have been aiding its quarterly performance. The company’s proven off-price business model along with competitive bargains continues to make its stores an attractive destination for customers. Additionally, the company has been committed toward improving merchandise assortments in the ladies’ apparel business in order to boost the top line. These factors collectively underscore the company’s solid potential. This Zacks Rank #3 (Hold) stock has gained 10.4% in a month’s time. The Zacks Consensus Estimate for current fiscal year has improved by a penny to $4.05 in the past 30 days.
The TJX Companies (TJX - Free Report) has showcased an impressive run in the bourses, courtesy of its impressive comps record. Comps have been gaining from continued rise in consumer traffic and strength in merchandising policies. These factors along with TJX Companies’ off-price model, strategic store locations, impressive brands and fashion products have been driving its stores and online performance. The company also remains focused on its sales-driving efforts, which are expected to help it witness further market share gains. All these bode well for this Zacks Rank #3 stock that has advanced 8% in a month.
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