“Shopping-Down” – To Make Money in the Market, Look for the Shoppers Saving Money
By Robert Perrego, at 10:48 am on July 8th, 2009Family Dollar Stores, Inc. (NYSE: FDO) beat by 3 cents, reporting earnings of $0.62 per share beating the $0.59 consensus estimate and rising from previous quarters earnings of $0.46. This beat is illustrating the ’shopping-down’ of budget constrained consumers which can be seen by the migrating of their shopping patterns towards discount stores (Family Dollar, 99 Cents Only Stores, etc…) at the expense of upscale sellers (Nordtrom’s, Saks, etc…).
Since the top of the market in December of 2007 here is a summary of the performance of some top-end retailers and the discount stores;
Dow Jones Industrials 14,164 8215 -42%
Nordstrom, Inc. (NYSE: JWN) $48.96 $18.59 -62%
Saks Incorporated (NYSE: SKS) $17.43 $4.87 -72%
Tiffany & Co. (NYSE: TIF) $56.00 $24.15 -57%
average return -64%
Family Dollar Stores, Inc (NYSE: FDO) $27.31 $30.63 +12%
99 Cents Only Stores (NYSE: NDN) $12.23 $13.50 +10%
Dollar Tree Stores Inc. (NSDQ: DLTR) $41.40 $43.22 +4.4%
average return +8.8%
Keeping this comparison in mind one might want to favor McDonald’s Corp. (NYSE: MCD) and any store having a ‘Dollar Menu’ when looking for investment opportunities in the restaurant sector. I know a few $1 cheeseburgers looks a lot better to my wallet than a $10 burger and fry plate these days.
If you want to make your investments according to the consumers wallet when you think the economy is getting better and the consumer’s wallet is getting stronger, you could buy the premium retailers and short the discount stores. One indicator to watch for when to put this trade on is unemployment numbers. More jobs means more money in the consumer pocket so, when this number finally bottoms and heads up going long the high end retailers might make sense. If you had shorted the premium stores and went long the discounts since the top of the market there was a lot of money to be made.
Be careful when putting this type of trade on as premium shoppers that went to a discount store for the first time may not go back to the high dollar lands as fast after realizing just how cheap some products can be.
