With the rise of e-commerce giants like Amazon and eBay, some people believe that local retail is fading. According to the U.S. Census Bureau, however, retailers experienced 0.6 percent higher sales in March 2018 than the month prior. The retail sector isn’t fading but, rather, changing. You can capitalize on this trend by investing in the right retail companies.
#1) Research Retailers before Investing:
The golden rule of investing is to research and familiarize yourself with the company beforehand. In other words, don’t invest in a retail company with which you aren’t familiar. Just because you own a product sold by the company doesn’t necessarily make you qualified for investing. You should research the company to identify its goals, strengths and weaknesses. Only then can you make a sound decision regarding an investment.
#2) Resilient Retailers:
Some retail companies are more resilient than others, and focusing your investments on these companies can increase your chances of financial success. Dollar stores like Dollar General and Dollar Tree are resilient to market changes that can otherwise affect a retailer’s sales and profits. Membership-based warehouse retailers like Costco, BJ’s Wholesale and Sam’s Club are also known to weather bad market conditions.
#3) Omni-Channel Marketing:
Retailers that embrace an omni-channel marketing strategy will attract more customers and generate higher profits than their counterparts with a linear marketing strategy. Omni-channel marketing refers to the use of multiple mediums to promote a business and its products or services. Walmart, for example, has positioned itself as a key player in the retail sector, partly by promoting its products on multiple channels. In addition to direct mail ads and billboard signs, the retailing giant uses email, search advertising, social media and other digital channels.
#4) Look beyond Profits:
While profits is arguably the most important key performance indicator (KPI) of a retail company’s success, you should analyze other metrics when deciding whether to invest in a retailer. If a company is planning to open dozens of new locations, for example, this may dilute its earnings. So, look beyond profits and consider the company’s long-term strategy.
Finally, consider a retail company’s operational logistics. If a company has a dated, inefficient logistics stream, customers will have to wait longer to receive their products. Not only does this hurt the retailer’s reputation, but it can also sales volume and profits. Some retailers have restructured their logistics to overcome these challenges. The grocery retailer Kroger recently launched the ClickList program, allowing customers to order groceries online and pick them up without ever leaving their vehicle.
Don’t let your portfolio take a hit because of bad investments. Follow these five tips to choose the right retail companies in which to invest.
Yorkville Advisors, LLC is a privately owned hedge fund sponsor that also provides specialty financing solutions to its clients.