3 Destination Retailers Increasing Store Counts
I came across a few tweets last night about what Steve Mandel looks
for in a retailer. Who is Steve Mandel you might ask? Well he is
the manager of Lone Pine Capital and has been crushing the market
for some time now. As the editor of Follow The Money, we followed
an investment of his for a quick 5% gain.
What this institutional investor is looking for is a destination
retailer that is seeing the demand for more stores. More stores
generally means more sales, but in the new age of online shopping
is every store a showroom? Not all of them.
The basic problem that many see with
Best Buy
(
BBY
) is that it's a showroom for
Amazon
(
AMZN
) or other online entities. While BBY is a destination store -
meaning that store has the attributes of many stores and has
hundreds of similar products under one roof - it's not in expansion
mode. In fact, it's in contraction mode and therefore one that is
not on my list.
So we want a retailer that is a destination store that gives
consumers a reason to travel to come to the store and bypass the
idea of Amazon, eBay or other online stores. We want growth in
stores that are generally big stores, I am not talking about adding
another Subway franchise for a more sales of $5 footlongs.
The first retailer that I fits the bill is
Ulta Salon
(
ULTA
) which is currently a Zacks #3 Rank (Hold) stock, but I would
expect that ranking to change over the next few weeks. While past
performance is not indicative of the future, ULTA has been a Zacks
#1 Rank (Strong Buy) or a Zacks #2 Rank (Buy) from September 10,
2011 through August 7, 2012. The last time the stock was a #3, it
held that rank for a month before spending the next 11 months as a
#1 or #2.
Ulta Salons, based in Bolingbrook IL, is a retailer of beauty
products and most of its stores are 10,000 square foot monsters.
They set themselves apart from other retailer in the beauty
industry by having testers or sample products. The also employ
licensed beauticians.
The retailer has 9 million active loyalty users in its rewards
program, and solid foot traffic. The average store is 10,000 sq ft.
20,000 sku's in those stores. The current store count is about 467,
but management has announced plans to build out the store count to
1,200. The company plans on opening 100 stores in 2012.
My next pick that fits our guidelines is
Whole Foods
(
WFM
). The company has recently announced that it is looking to triple
its store count from the 328 it reported in the most recent quarter
to about 1,000 stores.
The company only opened 15 stores in 2007, but has since picked up
the pace of its expansion and will open 22 in 2012. The plan is for
the expansion to pick up some steam in the coming years. Its stores
range from as small as 25,000 square feet to 70,000 square feet
mega stores in Chicago and New York City. The company aims to add
stores in the sweet spot of 35,000 - 50,000 square feet.
As the high end grocery store, WFM is a destination store because
it offers higher quality food and products. Its produce section
alone has been noted as the reason for most of its foot traffic.
Whole Foods gives its regions autonomy in purchasing and
promotions, which provides greater ability to source local
products.
One of the best data points that suggests that there is plenty of
room for the higher end grocer came during the 3Q12 earnings
conference call. Within 33 minutes of announcing its planned
expansion its Facebook page was flooded with over 1200 comments
suggesting store locations close to users.
Whole Foods is a Zacks #2 Rank (Buy) stock and has been a Zacks #1
Rank (Strong Buy) or a #2 Rank for most of the year. In fact, it
has been a Zacks #3 Rank (Hold) for all of 11 nonconsecutive
calendar days this year.
Finally we have a real destination store, when one of these opens,
people flock from miles and miles around.
Cabela's
(
CAB
) opens a store and people line up around the block. They open
super stores of 80,000 to 110,000 square feet filled with outdoor
merchandise.
Not only is there a fudge shop and a restaurant in most stores, you
can feed the fish and buy a gun. We all need more guns and may I
suggest a Smith & Wesson or a Strum Ruger firearm if you are in
the market.
The idea of expansion here isn't quite the same as it is for the
other two examples, but the growth is consistent. The company has
38 stores as of mid-August and plans to open 7 stores in 2013. Off
the small base that is some significant growth. While ULTA and WFM
have announced plans to open 3x the number of stores, CAB is moving
a little slower. But we all know that slow and steady wins the
race.
Cabela's has been a Zacks #1 Rank or Zacks #2 Rank stock for most
of the year. By now you are seeing a recurring theme of destination
stores that are expanding the number of locations and their Zacks
Rank.
It seems that more stores don't always translate into more
showrooms.
Brian Bolan is a Stock Strategist for Zacks.com. He is also the
Editor in charge of the
Zacks Home
Run Investor service
Brian is also the editor of
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AMAZON.COM INC (AMZN): Free Stock Analysis
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BEST BUY (BBY): Free Stock Analysis Report
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CABELAS INC (CAB): Free Stock Analysis Report
CABELAS INC (CAB): Free Stock Analysis Report
ULTA SALON COSM (ULTA): Free Stock Analysis
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ULTA SALON COSM (ULTA): Free Stock Analysis
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WHOLE FOODS MKT (WFM): Free Stock Analysis
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WHOLE FOODS MKT (WFM): Free Stock Analysis
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