Lessons From The Black Friday Trenches

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

Whose bright idea was it to have people wait in line in a stuffy department store for two hours after the biggest meal of the year? I should have waited outside Wal-Mart instead of inside Kohl's (NYSE: KSS) for my one piddling purchase. The two women behind me in line had already visited K-Mart, Wal-Mart Stores (NYSE: WMT) ,Target, and now had been in line with me for the duration.

These two were pros, having finished all their holiday shopping in one fell swoop until they hit Kohl's. They reported they got in and out of Wal-Mart in fifteen minutes even though hours earlier when I drove past lines were around the block. Best Buy (NYSE: BBY)  also had a line with camping tents just before 9 p.m. and several county police cars in front, too, to keep the peace.

Target however had almost no line and the pros reported once again they were in and out within minutes. K-Mart was crowded but checkout was swift, too. What was the problem with Kohl's? First, one scanner was down and every five minutes another associate asked those of us in line would we like 30% off our purchase today to sign up for a Kohl's credit card. After the third time in half an hour the women behind me darkly muttered about these associates hitting them up instead of ringing them up.

At Macy's the next day, the afternoon of Black Friday was busy, busy, busy especially in women's shoes and boots but I was rung up within minutes with all the appropriate discounts. My daughter and I found a pair of Guess boots for half off with additional Black Friday discounts and were very happy after our Kohl's debacle.

Were I a stockholder in Kohl's I might have put in a sell order for the next day as I was so impressed by how much better these other retailers were handling Black Friday. Macy's had the Google wallet option and more associates helping with getting merchandise out and people rung up. Macy's also had higher end quality merchandise. Hint: if you have friends or relatives that shop at Kohl's expect a crockpot as a gift this year.

Cut Your Losses

My daughter explained a simple principle of behavioral finance to me, "sunk cost theory," the time or money already spent on an endeavor or purchase should be ignored as the future odds/prospects of going forward are the only ones that are relevant. She added after we had already been in line for 45 minutes at Kohl's that I needed to decide how long I'd be willing to wait if had just joined the line. She taught me very few people can implement sunk cost theory when it comes to investing their own time or money.

Cut your losses, in other words, before they mount up. As applied to retailers, I would say sell Kohl's and Best Buy on any uptick and instead buy some of what's working including Macy's (NYSE: M),Wal-Mart and Amazon.com (NASDAQ: AMZN).

Kohl's may have an 11.92 P/E and a 2.50% yield which goes ex-dividend on December 3 but it is also down - 0.06% over 52 weeks while the S&P is up 18.16%. Kohl's also has 4.58 billion in debt to 550 million in cash. Its profit margin is only 5.62%.

Best Buy is just a Hail Mary name in hopes of a buyout by its founder Richard Schulze. The stock is trading at 5 year lows, down 77% since 2007 with a negative EPS of -$3.36. Best Buy just reported Q3 earnings of $0.03 per share down from $0.47 in the year ago period. They also reported same store sales down by 4.3%. Best Buy will continue to be pressured by competition from Wal-Mart (located next to the Best Buy where I live) and Amazon. Even with lines on Black Friday and a new CEO, Hubert Joly, it isn't enough to turn this name around.

Boost Your Profits 

Wal-Mart has finally found a Black Friday system that averts violence and still satisfies shoppers although it is a burden on their salespeople. Reuters reports that a new kind of shopper was shopping this year, one that had normally avoided Black Friday bricks and mortar. The shopping in shifts strategy seems to be working quite well.

If you are a socially responsible investor you may have a problem with Wal-Mart but it is the largest retailer in the world. It has pulled back 10% from its 52 week high at $77.60. The P/E is 14.44 and it has a 2.30% yield. 

Macy's is still a better mid-range retailer than Kohl's with its higher price merchandise. Michael Kors and Coach accessories were doing a brisk business but Macy's own Studio One house brand, was doing well, also. Macy's with its localized merchandise is still working and the stock performance is, too with the stock up 35.31% over the last year and a P/E of 12.93 with a 2.00% yield. 

As for Amazon, the Cyber Monday numbers aren't in yet, but for those intimidated by Black Friday and its huddled masses, Amazon is the marketplace. The P/E is outrageous at 2855.71 but the forward P/E comes down to 136.30. This is a long term growth name, one that will benefit by the year over year uptrend in e-commerce as reported by the National Retail Federation. It has so many other irons in the fire, including the Kindle Fire HD tablet, that it is close to being a tech conglomerate like Google.

Another Black Friday On The Books

In a few days the official numbers will be out on the biggest shopping day of the year, a make or break day for many retailers. Now is the time to get in line to buy Wal-Mart, Amazon, and Macy's before they report their next earnings. As for Kohl's and Best Buy, the time to get out of the line and cut your losses is now, before they report their earnings again. Remember to forget your sunk costs and think ahead to what these companies' futures look like and then make your decision. Lesson learned.


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