Before You Buy Retail Stocks, Read This

Buy Retail StocksOver the last decade, Internet shopping has changed the retail market sector forever. Whereas once large retail stocks such as Best Buy Co., Inc. (NYSE/BBY) dominated the landscape for electronics, new companies like Amazon.com, Inc. (NASDAQ/AMZN) are taking over with speed, ease of service, and reliability.

Another problem for large retail stocks is beyond the normal hassles for consumers, such as driving to the store with the higher cost of gasoline and increased traffic. But there are new problems that have been highlighted by a recent survey conducted by comScore, indicating that over 60% of consumers have visited an electronic retailer to examine the products in-store, and then purchased the goods online. This is a new threat to retail stocks, as the market sector has never witnessed such a dramatic shift before.

This changing market sector must be addressed by retail stocks like Best Buy. Best Buy itself is under increasing pressure to survive, as corporate earnings have continued to decline. The fact is that consumers want more in this market sector than simply buying a commodity when they visit the physical store of retail stocks. A company that tries to fill this need is lululemon athletica inc. (NASDAQ/LULU). This is one of a few retail stocks that have embraced the new realities of the market sector. One great example of being interactive with clients is how lululemon offers clients in-store yoga lessons. This creates social connections and goes beyond just buying yoga gear.

Best Buy has already initiated the closure of some 50 large-format, traditional stores and has instead opened smaller stores. Retail stocks are now realizing that the big-box format does not always work. Only certain retail stocks understand their market sector and what makes their clients drive to a physical location.

This will not be an easy change for many retail stocks. We’re talking about changing an entire culture of traditional retail stocks to a more dynamic market sector. The people who work for lululemon love its products and are passionately loyal to the brand. While it is true that Best Buy is not a brand in itself (as it doesn’t make its own products), the idea is to create an environment in which clients feel that the physical experience of going to a store exceeds what they can get online.

With Internet use continuing to grow, I foresee more headwinds for traditional retail stocks. The market sector will evolve, and the retail stocks that are able to capture the new shopping patterns will do exceptionally well. The retail stocks that fail to understand the market sector will continue to decline.