'Revenge Spending' Won't Stop the Retail Apocalypse

Spending is picking back up... 'Revenge spending' won't stop the retail apocalypse... The top retailers today all have this in common... Mall bankruptcies galore... A great chance to buy 'portfolio insurance'...

People are talking a lot these days about 'going out' again...

And we don't blame anyone for wanting to return to the wilds of life...

The past 16 months or so have tested the mettle of anyone with a desire for social interaction – which, of course, is all of us to varying degrees...

On balance, that means many more people are getting out of their houses these days – at least compared with this time last year. And we're buying things again that were missed in 2020 – like food inside restaurants or vacations at the closest beach destinations.

I (Corey McLaughlin) wrote about this topic in the June 1 Digest after witnessing the longest line I had ever seen outside a Nike (NKE) outlet store... At least 50 people were waiting to get inside when the store opened on a Saturday morning at the end of last month.

So it didn't surprise me last Thursday when the giant athletic-apparel retailer said its sales in North America more than doubled year over year last quarter to a record $5.38 billion. Shares of Nike's stock popped more than 15% on Friday, the day after the announcement.

In the June 10 Digest, we also touched on this topic... We noted that people were spending more again with their credit cards, according to recent data. Credit-card giant Visa (V) said consumer spending was up 30% in April and May when compared with 2019 levels.

Many analysts in the mainstream media are calling this reopening trend "revenge spending" – meaning folks are using their wallets to "get back" at the COVID-19 pandemic. To be sure, it does feel good to simply be able to buy stuff, if the price is right.

But as Stansberry's Big Trade editor Bill McGilton explained in his latest monthly issue, which was sent to his subscribers last Wednesday, it's important to note that many people are seriously mistaken on where this so-called revenge spending is actually happening...

These folks think the old days of in-person retail is back. But Bill says that's far from the case... The "retail apocalypse" that we've covered over the years is still going strong.

And knowing this can be an opportunity for investors today...

Anecdotally, you may hear your neighbor talking about how nice it was to go into a big store with no restrictions...

Frankly, you might feel the same way. And the numbers show that appears to be the case with many folks...

As Bill wrote in Big Trade last week, retail traffic is up 93% as of the week ending June 5 in comparison with the same week in 2020 – when stores were closed or open at limited capacity. And retail-analytics firm Prodco says traffic at luxury stores is even stronger... It's up 179% over the same period.

But these short-term numbers hide the fact that one of the biggest trends that spiked during the onset of the pandemic – buying from home rather than in stores – remains stronger than ever today. As Bill said...

Once again, the market is riding the euphoria of the economy reopening while discounting the facts... and forgetting what "normal" means for brick-and-mortar stores.

The fact is, the "retail apocalypse" – the long-term trend of consumers switching from brick-and-mortar retailers to online vendors – is still very much in place.

While the retail-traffic numbers so far in 2021 seem strong compared with 2020, when you go back to 2019 – prior to the pandemic – they're still declining...

Retail traffic in the week ending June 5 was down 41% when compared with 2019. And traffic at apparel and luxury stores fell 46% and 38%, respectively, over that span.

Meanwhile, online-retail sales have only gotten stronger with the pandemic... In the first quarter of 2021, U.S. online-retail sales grew to $215 billion.

That's up 39% year over year from the first quarter of 2020, according to U.S. Census Bureau e-commerce data. And it's more than two and a half times the 15% increase registered in the first quarter of 2020.

In Big Trade, Bill looks for ways to profit from companies whose stock prices are going to drop... That's why the commonly assumed belief about revenge spending saving in-person retail companies is squarely on his radar. More from this month's issue...

COVID-19 pushed folks to shop online... And they like it. They're now shopping online more than ever before. Swiss investment bank UBS expects e-commerce to jump from around 18% of total retail sales today to 27% by 2026.

Speculators bidding up brick-and-mortar retail stocks think short-term reopening dynamics like revenge shoppers are somehow going to reverse this trend... And they are sorely mistaken.

Shares of department-store chain Nordstrom (JWN), for instance, are up around 200% since early November 2020... And at times earlier this year, they topped their pre-pandemic levels. It's a similar story with department-store chain Kohl's (KSS), which is up 160% in that span.

But according to Bill, it's only a matter of time before investors come back to Earth and realize that the death of in-person retail is still marching on... and that not all "revenge spending" is created equal.

Take a look at the strongest retailers today...

Spending accounts for 70% of the American economy, so there are plenty of opportunities for retailers to make money. But consumers have far more choices today than ever before... So making the experience as simple as possible – and worth a trip to the retailer's store or website – is critical for any company that wants a significant slice of the spending pie.

The strongest retailers today are all companies that were able to adjust relatively quickly to shifting consumer needs over the past 15 years. As Bill wrote in Big Trade...

You can see in the table below which retail models work... and which don't...

Discount chains like TJX (owner of TJ Maxx, Marshalls, and HomeGoods) are pulling ahead, offering customers bargains. They buy surplus merchandise, leftover inventory from other stores, and out-of-season items. And customers can't get enough. They visit the stores in search of bargains and must buy on impulse, or the item might not be there the next time they come in.

Mass discounters like Walmart (WMT) and Costco Wholesale (COST) have developed some of the best supply chains in the world – buying from manufacturers at the absolute lowest prices. They pass the discounts on to their customers.

Big-box retailer Target (TGT) carved out an amazing niche. It's a discounter focused on better-quality products and convenience. It sells a broad range of merchandise from clothes to home goods – many of which are its own brands. Its stores are conveniently located off-mall – so they're easy to run in and out of.

Online retailers like Amazon have few physical stores to pay for and can provide deep discounts to consumers along with the convenience of at-home shopping. And what's more, online shopping gives more options for consumers to choose from and the ability to customize products.

To add another example, let's carry through the story of Nike...

Nike is benefiting from both sides of the coin today... It's profiting from work-at-home and school-at-home trends as folks buy more casual clothing, as well as the economic reopening as people wear Nike items out of the house, too.

And maybe most important, years ago, Nike had the foresight to bring all its online retail business "in house," so to speak... In 2019, Nike decided to pull all of its products off Amazon's platforms.

Many people wondered how business would turn out after that move... Today, the answer appears to be "quite well."

It's similar to what another leading retailer, Home Depot (HD), has done over the years to strengthen its own supply chain and assets. As we wrote in the August 19, 2020 Digest...

A decade ago, Home Depot made the decision to take more control of its supply chain, redirecting shipments from vendors to central Home Depot Rapid Deployment Centers ("RDCs") instead of to individual stores...

Today, Home Depot is doing it again... Earlier this month, the company said it will open three new distribution centers in its home base of Atlanta alone over the next 18 months to support demand for flexible delivery and pick-up options. It plans to hire 1,000 new employees.

Companies that have the foresight and ability to make moves like this put themselves in great positions to keep growing...

But on the flip side, the retailers that don't change simply won't last...

They might get a great short-term boost in sales in the next quarter or two as the U.S. reopens. But companies that aren't nimble or forward-thinking – and don't have a great online presence – are not long for the retail world.

In other words, if you think that revenge spending at certain beaten-down brick-and-mortar stores over the past several months – and next few, potentially – will save these stores in the long run... think again.

Just look at what's going on with mall owners and operators today. As Bill told his subscribers last week...

Just last week, mall owner Washington Prime Group (WPG) filed for a Chapter 11 "restructuring" bankruptcy. Washington Prime owns 101 malls and shopping centers across the U.S. Mall giant Simon Property Group (SPG) spun off its weaker properties through Washington Prime in 2014.

The pandemic was the final straw for the company. Forced store closures and falling mall traffic meant less rent to collect. Washington Prime collected $127 million less rent in 2020 than it did in 2019. And that trend continued into 2021. In the end, the rent shortfall was just too much for Washington Prime to overcome.

This is the third major mall chain to file for bankruptcy in the past eight months. In November, mall operators CBL & Associates Properties and Pennsylvania Real Estate Investment Trust also filed for bankruptcy.

Since last May, big department stores JC Penney, Belk, Lord & Taylor, Neiman Marcus, and Stein Mart have all filed for bankruptcy... and so have other major retailers like J. Crew, Tailored Brands (Men's Wearhouse and Jos. A. Bank), Brooks Brothers, Ascena Retail (Lane Bryant and Ann Taylor), Pier 1 Imports, and GNC.

As we first wrote years ago and most recently in the August 20, 2020 Digest, the old "retail ecosystem" of big-box department stores acting as anchor tenants to draw traffic to the malls is a dying business model...

It was designed for an era when consumers had fewer choices and were happy to purchase limited products all under the same roof. That just isn't how people shop today – at least not in the physical sense.

They still do shop "under the same roof"... But now, that roof is the Internet. And they can do it at any hour of the day, multiple days per week, instead of planning a few hours during a particular day to drive to the mall.

Amazon, in effect, is a digital mall. (And the company has actually considered taking over empty shopping malls to turn them into online distribution centers.)

As we said earlier, in Big Trade, Bill finds opportunities betting against companies that the market is overvaluing...

It's part of a broader portfolio strategy that he likes to call "portfolio insurance."

With the trades Bill recommends, you really do two things at once...

Practically, he's finding an opportunity in the market and betting that a particular stock price will go lower. In this month's issue, for example, a dying retail brand is the focus.

But moreover, his trades act as a defensive hedge against market volatility... We saw this idea play out in real time in March 2020, when he closed out several triple-digit gains while the rest of the world appeared to be falling apart – including three 100%-plus winners in eight days.

These positions might take some time to pay up. But just like your car or health insurance, you don't want to try to buy them after you get in an accident or get sick... Getting in early can make a huge difference in preserving and even growing your wealth.

Today, many brick-and-mortar retailers fall into the category of "overvalued." These stocks have continued to move higher this year, along with the broader market propped up by the Federal Reserve...

But Bill has identified the stock of one major mall tenant in particular that is trading around the same valuation as prior to the pandemic – when its business was in far better shape.

This company doesn't have a business model that will put it on the right side of the list we showed earlier in today's Digest. The items it sells are neither cheap nor luxury... It's kind of stuck in the middle with no niche. And on the balance sheet, its obligations outweigh its assets.

We hate to personally wish anyone failure (well, mostly... the Eastman Kodak execs who front-ran government loans come to mind as a few we couldn't care less about). But the dire circumstances of this company Bill is talking about are what they are... And other folks' failure to acknowledge them presents a great opportunity to add some insurance to your own portfolio.

Existing Big Trade subscribers can check out your latest issue right here. And if you don't already subscribe to Big Trade, we've put together a special offer today... For a limited time, you can claim instant access to Bill's research for the next year at 40% off the regular price. Get started right here.

Investing in Your Health

In this week's episode of the Stansberry Investor Hour, our colleague and podcast host Dan Ferris invited longtime colleague Dr. David "Doc" Eifrig on to the show for a wide-ranging discussion...

Dan and Doc talked about some of the absurd examples of excess in the markets today... the likelihood of inflation in the coming years... and Doc's favorite way to produce safe, reliable income for those already in retirement...

Click here to listen to the podcast right now. And to get every episode of the Investor Hour delivered to your inbox as soon as it goes live, you can subscribe for free right here.

New 52-week highs (as of 6/28/21): Analog Devices (ADI), American Tower (AMT), Costco Wholesale (COST), Cintas (CTAS), Dropbox (DBX), DocuSign (DOCU), Expeditors International of Washington (EXPD), Facebook (FB), Formula One Group (FWONA), Alphabet (GOOGL), Intuit (INTU), Nuveen Preferred Securities Income Fund (JPS), KraneShares SSE STAR Market 50 Index Fund (KSTR), Microsoft (MSFT), Cloudflare (NET), Intellia Therapeutics (NTLA), Invesco S&P 500 BuyWrite Fund (PBP), ResMed (RMD), ProShares Ultra Technology Fund (ROM), ProShares Ultra S&P 500 Fund (SSO), ProShares Ultra Semiconductors Fund (USD), Vanguard S&P 500 Fund (VOO), and Zebra Technologies (ZBRA).

In today's mailbag, feedback on Doc Eifrig's Masters Series essay on Saturday about the only thing Millennials get right. Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"I'm thinking more luck than prudent planning on that one. Not counting COVID, which wasn't or isn't really an economic caused recession, rather a convenient political opportunity to blame fiscal planning failures on something other than horrible leadership. Millennials haven't had to adjust for an investment reset in a dozen years. No hits, no runs, no errors... because the game was rigged. No prior generation of Americans was gifted a Fed-faked recovery quite like this one. That's dumb luck pending while conveniently allowing for debts (in every sock in the drawer) to accumulate without any dedicated accruals to address it.

"Anybody over the age of 60 has taken as many swings and misses as they have had years with good savings and investment batting averages. That dampens the savings account totals. The time is coming for millennials too, in fact it's right around the corner.

"Social Security wasn't our (Baby Boomers) idea. It was the government taking our actual and possible earnings under false pretenses and promises, and then spending it elsewhere before we could make claim for the return of our then due stolen but never really invested earnings. Misappropriation, if not a Ponzi scheme, comes to mind.

"There are a lot of retirees in America right now. Some of us have pensions, IRAs and Social Security Retirement Income. None alone works really well, but added together, they make do. Others have only SSRI. If our government allows that meager stipend of stolen security to go broke, they'll have about 68.7 million people here making sure they never serve another day in office and never collect any separately funded government retirements either. Congress creates their very own storming of the Capitol steps, they certainly didn't and don't need any help with that.

"Most of us fully understand how the lack of term limits in the U.S. motivates elected officials to make political choices (like printing and giving away money they don't have in the hopes of being re-elected out of dumb gratitude) rather than to make fiscally sound and responsible choices by spending only what you do have, cutting other costs as necessary and being unpopular but of sound mind and good leadership DNA.

"If they can't be re-elected, politicians will cease to exist as such and good people temporarily serving their country will get it all right once and FOR ALL. Our futures should be totally up to us, not some partisan group of elected officials searching for more money to give away for another ballot in their luxury box. We are smarter than politicians, we just need to use those smarts and stop hoping they'll change their misguided and too often deceitful little ways." – Paid-up subscriber John C.

All the best,

Corey McLaughlin
Baltimore, Maryland
June 29, 2021