3 Brick-and-Mortar Stores That Can Thrive in an Age of E-Commerce

Bed Bath & Beyond (NASDAQ: BBBY) stock recently plummeted after the company reported a sharp decline in sales. It illustrates the fact that some brick-and-mortar stores continue to struggle in a new digital era, even as in-person shopping starts to make a comeback. But some traditional retailers are thriving. In this segment from "The 5" on Motley Fool Live that aired Sept. 30, contributors Brian Withers, Toby Bordelon, and Nicholas Rossolillo pitch three retail stocks that are thriving right now.

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Brian Withers: Bed Bath and Beyond. This is a shocker. Shares are diving after sales declines for Bed Bath and Beyond. Stuff for the home, brick-and-mortar retailer. I'm shocked. Net sales fell 26 percent. I imagine a combination of just increased competition as well as the coronavirus and the company lowered its sales and adjusted profit expectations for the year as it anticipates further supply chain challenges. Brick-and-mortar retailers selling commodity products during a pandemic, what could go wrong? Let's do the opposite. What's the opposite of Bed Bath and Beyond? Is there a brick-and-mortar retailer that is set up to compete with the ongoing on-slot wave of e-commerce? What is it that they are doing right? Nick?

Nicholas Rossolillo: Super boring, Target (NYSE: TGT). I guess they're kind of boring. All brick-and-mortar is going to have some built-in boring-ness to the story. But I like Target specifically because I think there was an acquisition they made a few years ago really went largely unnoticed, when they acquired Shipt. They've now fully integrated Shipt into their operations as a type of last-mile delivery service. I think that's absolutely huge for Target to have that in-house, like Amazon (NASDAQ: AMZN) has its own in-house last-mile delivery operation. Not just from a business standpoint or an operational standpoint, but also just the fact that it aligns the delivery service with Target and with Target customers. I think that's the problem that a lot of consumer reviews have exposed like with the Instacarts out there in the last year. You just have like another party with its own interests involved now versus having this nice, well-rounded business that's all on the same page. I think Shipt is a real differentiator there.

Then pair that with the fact Target led the way reimagining the way brick-and-mortar stores, turning the existing store base into a type of a distribution center. The total percentage of orders being fulfilled by an actual Target store versus a distribution center somewhere is huge. It's like 95 percent of all orders at Target fulfilled from an actual store. That's also huge like. They have just completely repurposed the big-box store concept and I think it's going to continue to be a real game changer for them in the years ahead.

Withers: Yes, I've been super-impressed with Target over the last several years. I've used their buy online pick-up-in-store service. They have Starbucks in the store. Most of them have groceries, so there's that buy anything you need, run. Just been impressed as a customer to see what they can do and not only the pick-up-in-store, you can have it delivered. You can park in the parking lot and not even get out of the car. That's pretty neat. Toby, what about you?

Toby Bordelon: I'm going to go with Home Depot (NYSE: HD). I think that's probably a fairly obvious one. But I have found myself going out to grab something that I need there because I don't want to wait overnight from Amazon if I want to get the job done. So I want to grab what I need now. I need to know what we think about supply chain issues and things taking a little bit longer. That's even more true now because it's not just waiting overnight, you might be waiting two or three days. I just don't want to do that and you, you can't do that.

The other thing I like about Home Depot, there's one thing they got going forward is the employees I found they know what they're doing and they are a great resource for quick questions and advice, especially if like, which of these products that can be better for this particular application? They tend to have some pretty good suggestions as to which way you should go. It's useful in that it gets your stuff quickly. But you can also get that maybe suggestion or advice looking forward to you if you don't quite know exactly what you need.

Withers: Yeah. Not like when you ask us questions about which stock you should buy and we say we can't give you advice. [laughs]. Well, those are two great ones and I was last to the notes outline and those were two that I was going to go to. But one company that we've covered before, Toby and I we did a deep dive with Vicki, was Tractor Supply Company (NASDAQ: TSCO), pretty darn impressive company.

It's got a new CEO recently who came in just before the coronavirus and was just very impressed with the leadership that he put forward. He immediately said we're hiring 6,000 people, we're investing in our stores and the health of our other teams, we're providing masks for our employees, did a ton of things to make sure their employees were well taken care of, and the fact that it's a farming and feed store, it was essential during the coronavirus, they were open through the whole time, and they added a ton of customers through the coronavirus, and these customers have chosen to come back again and again because of the service that they get and the products that are available there. You may not be a customer of the out there store, but if you ever have a chance to go, go in one, they're a pretty impressively run company. They also have an online presence as well, but their store basis is their bread and butter.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Brian Withers has no position in any of the stocks mentioned. Nicholas Rossolillo and his clients own shares of Target. Toby Bordelon owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon and Home Depot. The Motley Fool recommends Tractor Supply and recommends the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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