Investing in Retail Stocks

Let me try to recall the names of just a few retailing companies that no longer exist: Montgomery Ward, Gimbels, B. Altman, Oppenheim Collins, Best & Co., Russeks, Caldor, Bradlees, Mammoth Mart, Loeser's, Namm's, Gimbels, Alexander's, Broadway-Hale, John Wanamaker, Lit Brothers, Lansburgh's, Swezey's, and E.J. Korvette - perhaps the very first "discounter." Entire department store chains - May Company, Associated Dry Goods, Allied Stores - have disappeared, either by selling off assets, closure, or by absorption bodily into other enterprises. Famous names have gone by the wayside - old-time names such as Filene's, Jordan Marsh, Arnold Constable, Lazarus, Prange's, Abraham & Straus, Shillito's, Denver Dry Goods, Davison's, Maas Brothers, Burdine's, Foley's. What's left of the ones which were acquired by Federated Department Stores, and were kept open, are or will be Bloomingdale's or Macy's. Even Marshall Field is now Macy's. You yourself could probably think of a dozen more store names that no longer exist in business under those names, or no longer exist in business at all.

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When I was in the shopping center development business decades ago, apart from a "high-end" department store the two most desirable department store-type merchants in a developer's eyes were Penney and K-mart. For a strip shopping center developer, a K-mart lease was golden. Now look. K-mart is part of Sears Holdings, and neither the K-mart stores nor the Sears stores are doing well. Neither a Sears lease nor a K-mart lease, even if it were available, would carry anything close to the same financing value as it did back in the day.

Even the name "Macy's" might have disappeared when Federated acquired R. H. Macy & Co., except that Federated chose to adopt the name "Macy's" for all of its mid-level stores nationwide.

The J. L. Hudson Company was the top department store in Detroit; the top department store in Minneapolis was Dayton's. They merged decades ago to become Dayton-Hudson Corporation. When the K-mart era began, Dayton-Hudson, as well as a few other department store companies, made forays into the "discount retailing" business in an effort to duplicate the K-mart model. Most, or all, of those attempts failed - except that of Dayton-Hudson, which opened a pilot "discount" store under the name "Target." It goes almost without saying that Target has been an unqualified success, even to the point that Dayton-Hudson Corporation divested its conventional department stores and changed its corporate name to Target Corporation.

What happened to investors' shares in the companies whose store names have disappeared? In some cases, they were exchanged for shares of Federated Department Stores, and those shares survive. In some other cases, the shares probably became of little value, or worthless.

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For investment purposes, how does one analyze Federated Department Stores, for example, from a fundamental standpoint? Certainly by studying the balance sheet and the profit and loss statement, for openers. An entire fleet of factors must be considered - for example, the status of the leases, including expiration dates, term extension options, escalation clauses; the demographic profile of the stores' locations; forecasts of population increase; the physical condition of the properties. From the standpoint of technical analysis, the challenge is less forbidding. The technical analyst will study the charts of Federated'stock price action, apply the technical Indicators of his choice, and produce a report for his private clients or for his investment newsletter subscribers recommending a course of action - or of no action - based upon his findings. This is fundamental analysis in shorthand form, the premise being that the price of the stock reflects all known factors of a fundamental nature.

It appears that Federated is a survivor and acquirer, and that it will be around for a long time. The department store genre is not about to go away. Wal-Mart, Target, and myriad "discount" or "off-price" stores have undeniably and adversely impacted the department store business, one result being that massive consolidations have taken place. Retailing will continue to evolve and change; but the customer will be served and facilities will be there to provide it. The names may change, but where there is demand there will be product to fill it and facilities to deliver it. On-line marketing may take an increasing percentage of retail sales; but I do not foresee total abandonment of in-place retail business to on-line merchandising or to the discount stores.

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