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The End of Retail in 401k Portfolio's?

Thursday, November 20

Disclaimer (This article is using information based on end of day figures for the NYSE on 11/19/08).

How can this be?

Is it really possible that I am seeing the very evaporation of the industry I have loved for so long? 

I have written, since this site's inception, about the looming clouds on the Retail Industry's horizon, and have spent much time assisting various companies with their preparedness for the storm.

I was, however, completely overwhelmed when I took a peek at my sample portfolio this evening and noticed the stock prices of some truly bell-weather companies.

Here are a few examples (if your jaw is not already on the floor from peeking at the chart on the right hand side of this post):

  • Revenue: $3.2 Billion 
  • Stock Price: $ 3.12
  • Market Cap: $442.73 MILLION DOLLARS!!!!!

That means this company, known around the world as one of America's premier destinations for luxury shopping, is worth less than Bebe. Bebe's revenue last year was 687.6 MILLION, just over 1/5 the revenue of Saks.

  • Revenue: $ 8.8 Billion
  • Stock Price: $ 8.98
  • Market Cap: $ 1.93 Billion

Seems like a lot compared to Saks, but wait. This company had an $8 Billion market cap on September 19th, that's AFTER the market meltdown started. Additionally, the market cap this February was $10 Billion. 

To illustrate how ridiculous this is, consider:
Urban Outfitters is worth $2.23 Billion today, while they produce LESS than 1/5 the revenue and 50% of the income as Nordstrom.
Expedia (Yes, THAT Expedia!) now has the same market cap as Nordstrom. So world class service, taught, as a model, at every major business school in the world and an inanimate lawn gnome are "equal value"? Give me a break.

  • Revenue: $26.3 Billion
  • Stock Price: $ 5.68
  • Market Cap: $ 2.4 Billion

Macy's. World renowned Macy's! The famous star Macy's! Miracle on 34th Street-Macy's! The one that does OVER $26 BILLION DOLLARS A YEAR - Macy's, now has a market cap of $2.4 Billion?

Would you like to know another company that does around the same amount of revenue?

McDonald's, which does a little less, $22.8 Billion.

Would you like to know McDonald's market cap? 


They, like Nordstrom, could be bought out by the likes of Urban Outfitters ($2.23 B) if they accepted stock swaps in this crazy environment.

Lastly, I would like to discuss perhaps the most perplexing thing taking place in the retail world right now. That would be, "What in the heck is going on with Border's Group?"

Here are the relevant numbers for Border's:
  • 547 Border's Super Stores
  • 476 "Other" Stores, including Waldenbooks
  • 114 Paper Chase Stores

  • Revenue: $ 3.7 Billion
  • Stock Price: $ 1.78
  • Market Cap: $107.8 MILLION!!!

This is a company that distributes media to the world. Books, DVDs, magazines, journals, compact discs, newspapers, maps, toys, calendars, games and everything else the Paper Chase store-within-a-store shops sell. They have, obviously, a quite formidable competitor in Barnes & Noble, however I have rarely been in a Border's store around the country (airports included) that was not packed!

So it strikes me as odd that the market cap on this company now sits at one-fifth of Gymboree and one-sixth of TiVo, even though they do 1/3 and 1/10 the revenue as Borders, and are not in the business of distributing such an essential product.

What is going on here is simple. The market is betting against the futures of these venerable institutions. They trying to tell us what they see the future to be. 

I have been very clear, but cautious in my warnings for all retailers this holiday season. I have even included commentary on a few of the four companies chronicled in this article. However, I have never once imagined a retail landscape WITHOUT any of these companies being included. I just cannot foresee that dark an outlook.

Wall Street may have it right in the end. They are scaring off plenty of fund managers who control the retirement funds of tens of millions workers. They are sending shivers down the spines of the employees of these companies, forcing many to rethink, and extend, the time lines of their planned retirements. In a nutshell people are obviously running in the other direction.

But I say, YOU ARE WRONG! I certainly anticipate a tough road ahead, but in the end, this will all shake out. These companies are not as mismanaged as you believe. And, while you may think you know fighting spirit in the Financial Sector, Retailer's are used to weathering the toughest of times AND coming out on top. 

Anyone that doubts this can look at use my market indicator:

You haven't seen Retailer's asking for bailout money.



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