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Can Traditional Retailers Battle Online Competition? 5 Picks

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On Cyber Monday, retail stocks enjoyed solid gains thanks to strong online sales on Black Friday. Even as in-store traffic and footfall declined, online purchases enjoyed a strong improvement. Meanwhile, initial estimates indicate that Cyber Monday likely was the biggest online shopping day in U.S. history.

However, traditional retailers have managed to remain relevant using a shift in strategy. An omnichannel approach, utilizing methods such as click-and-collect, means that they are unlikely to miss out on the windfall in sales during the holiday period. Investing in such select retail stocks still looks like a smart option.

Online Sales Hit Record High on Black Friday

Per Adobe Analytics, Black Friday raked in $6.22 billion in online sales, hitting a new high and increasing 23.6% from the year-ago period. As online sales continue to increase, both sales and traffic in store continue to decline.

Per preliminary analysis by RetailNext, sales in stores on Thanksgiving and Black Friday fell 4% and 7%, respectively, from last year. (Read: Black Friday Online Sales Hit Record: E-Commerce Romping Ahead)

Further, online sales from Wednesday to Black Friday increased 26.4% year over year to $12.3 billion, per Adobe. The spurt in Black Friday online sales helped the SPDR S&P Retail ETF (XRT) gain 2% on Monday.

Cyber Monday Sales to Touch $7.8 billion

Meanwhile, shares of Amazon (AMZN - Free Report) gained 5.3% following projections that Cyber Monday sales will touch $7.8 billion, per Adobe Analytics. This is almost 18% higher than last year’s figure, making it the largest online shopping day in the United States.

Meanwhile, online sales increased 28% year over year to $3.7 billion on Thanksgiving Day. The day witnessed the sharpest growth in online sales in history. Nearly $1 billion in sales originated from smartphones.

Traditional Retailers Stepping up Their Game

It isn’t just Amazon which gained following reports of a surge in online sales. Shares of GameStop (GME - Free Report) , American Eagle Outfitters (AEO - Free Report) , Best Buy (BBY - Free Report) and Target (TGT - Free Report) gained 8%, 5.5%, 2.9% and 2.8%, respectively.

This is a clear indication that the Thanksgiving period has been strong for both online and brick-and-mortar retailers. And traditional retailers have also been stepping up their game, per industry watchers. This segment is increasingly turning to an omnichannel approach to bolster sales.

Click-and-Collect is the New Watchword

Such an approach offers consumers options such as click-and-collect. Here, items can be bought online and picked up from a nearby store. This approach had become imperative for traditional retail since the rise of Amazon threatened to run them out of business around two years ago.

Investments in tech and digital platforms have gone up significantly. And their success is nowhere as visible as at Macy's, Inc. (M - Free Report) . Apart from click-and-collect, which it has employed quite successfully, the retailer’s mobile app is projected to rake in $1 billion in sales, per the company’s CEO Jeff Gennette.

Our Choices

Online sales seem to be fast taking over their traditional counterparts in the battle for retail market share. But brick-and-mortar retail is putting up a tough fight, particularly through the omnichannel approach it has adopted in recent times.

Innovations such as click-and-collect and investments in mobile apps are only some of the ways in which they have upped their online game. This is why select traditional retailers are still compelling picks. However, picking winning stocks may be difficult.

This is where our VGM Score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM Score. 

We have narrowed down our search to the following stocks based on a good Zacks Rank and VGM Score.

Boot Barn Holdings, Inc. (BOOT - Free Report) , which is a lifestyle retail chain, is an operator of specialty retail stores in the United States.  

Boot Barn Holdings carries a Zacks Rank #1 (Strong Buy) and has a VGM Score of A. The company has expected earnings growth of 78% for the current year. The Zacks Consensus Estimate for the current year has improved by 2.9% over the last 30 days.

Shoe Carnival, Inc. (SCVL - Free Report) is one of the largest family footwear retailers in the United States.

Shoe Carnival carries a Zacks Rank #1 and has a VGM Score of A. The company has expected earnings growth of 59.7% for the current year. The Zacks Consensus Estimate for the current year has improved by 10.2% over the last 30 days.

Conn's, Inc. (CONN - Free Report) is a specialty retailer of consumer durable goods in the United States.

Conn's has a VGM Score of B. The company’s expected earnings growth for the current year is more than 100%. The stock sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Dollar General Corporation (DG - Free Report) is one of the largest discount retailers in the United States.

Dollar General has a Zacks Rank #2 (Buy) and VGM Score of A. The company has expected earnings growth of 36% for the current year.

Macy's is one of the leading department store retailers in the United States.

Macy's carries a Zacks Rank #2 and has a VGM Score of B. The company has expected earnings growth of 11.6% for the current year. The Zacks Consensus Estimate for the current year has improved by 3.8% over the last 30 days.

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