Retail Trends from the Holiday Season

Eric is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Peter Lynch, Fidelity’s legendary mutual fund manager, was able to beat the market because, despite his financial knowledge, he was able to think like an amateur.  What does it mean to think like an amateur when it comes to investing?  It means investing in companies whose business models you understand from buying their products or utilizing their services.  Basically, Peter Lynch advised investors to invest in the companies they observed to be growing or sustainable throughout everyday life. 

Christmas morning—as it is commercially celebrated in America—helped to shed light on the economy’s current common sense investments, as well as those that might be failing as such.  Accordingly, investors might do well to step back and observe what Santa left under the tree this year; perhaps a new idea or two will present itself.

The rest of this article will be dedicated to certain observations that I made this Christmas.  For contextual purposes, I come from a suburban, middle-class family with a couple children (of which I am one) attending college and one who still attends high school.  It is important to consider your socioeconomic condition when analyzing such observations.  Hopefully my family is not the anomaly when it comes to gifts on Christmas morning.

  • For the second year in a row, someone in my family opened up a tablet on Christmas morning.  Also for the second year in a row, it was not an Apple (NASDAQ: AAPL) iPad.  Why is this?  It appears that the tablet users in my family are mostly apathetic to the technical specs that Wall Street analysts place so much weight on every time a new product is promoted.  The color, display, graphics, camera, dimensions; these things are irrelevant with regards to their desire for a tablet.  What they really want is a device—falling somewhere in between a Smartphone and a laptop—that allows them to peruse the internet while relaxing, watching television, etc.  With the cheapest iPad starting at $329, Apple simply isn’t going to win over consumers of this mindset.  Sure, Apple will retain its loyal, cult-like followers and probably a good share of consumers that constantly demand whatever is “latest and greatest.”  But keep in mind that Apple analysts often base their conclusions off of models, which are founded upon assumptions, which frequently include the practically cliché growth of the tablet market.  If this growth consists of a substantial number of consumers akin to those in my family, then it does not bode well for Apple moving forward.
  • It has almost become a Christmas tradition for me to receive some sort of Polo apparel—Ralph Lauren Corp. (NYSE: RL)—from at least one of my relatives.  And yet, it never gets old.  Furthermore, I can tell you with certainty that I am not alone in this sentiment among my peer group.  In fact, I recall reading a tweet from a friend who was excited about receiving Polo socks.  If your brand can excite 20-year-olds about socks, you must be doing something right.  I know Ralph Lauren has had somewhat of a troublesome year with its share price down as much as 18% since March as well as ever-lower full year guidance from management.  Indeed, the company’s stock might still be overpriced as its P/E ratio currently sits above 20.  But if this stock dips lower, investors could be looking at an incredible value opportunity.
  • My third and final observation is not so much from Christmas morning as it is from the weeks leading up to the holiday.  Furthermore, it is not a new trend that emerged on the scene this year, nor is it a trend that analysts have ignored.  Year after year, more gifts are arriving at my household by mail after being purchased online.  Indeed, internet shopping is growing at the expense of brick-and-mortar retailers.  However, the impact across retail is not universally homogeneous.  While consumer electronics are increasingly bought online from the likes of Amazon (NASDAQ: AMZN) instead of Best Buy (NYSE: BBY), I noticed not a single article of clothing was purchased via the internet by my family this holiday season.  In my opinion, this is perfectly logical; whereas consumer electronics are uniform—allowing consumers to be confident in the electronic orders they place—clothing and apparel is often less so, with discrepancies in exact size, color, and texture impossible to communicate over the web.  To put it simply, there is a reason that clothing stores have fitting rooms.  Accordingly, I am confident that clothing retailers are here to stay and that there are significant gains to be reaped by those who invest wisely.  That being said, it is not easy to successfully pick and choose winning retailers.  Nevertheless, I recall a friend of mine who was vouching for Gap Inc. (NYSE: GPS) last March, mostly because he thought their stock was underpriced and believed their fashion experts had nailed the latest trends.  If I had listened to him, I could have made 20% by now!

Clearly, these are not meant to be formal stock pitches in any way, shape, or form.  These observations are just that—one man’s perspective on this year’s holiday trends.  If such analysis was considered worthwhile by Peter Lynch, there is no reason for the rest of us to dismiss it.

Happy New Year!

Fool blogger Eric Tommarello does not own shares in any of the companies mentioned in this entry. The Motley Fool owns shares of Apple. Motley Fool newsletter services recommend Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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