Should You Be Swayed by Celebrity?
AnnaLisa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Recently, Yahoo! Shine featured a slideshow of celebrities shopping in the darnedest places: TJ Maxx, owned by The TJX Companies (NYSE: TJX), Wal-Mart (NYSE: WMT), and Target (NYSE: TGT).
Britain's Prince Harry was caught shopping at the European version of TJ Maxx. Britney Spears was wheeling out a heaping cart from Wal-Mart, and eight celebrities were snapped at Target: Glee's Lea Michele and Chris Colfer, Mad Men's January Jones, Rachel Bilson, reality star Kate Gosselin, Steve Carrell, Holly Madison, and even supermodel Heidi Klum.
The point being, with plenty of disposable income these celebrities choose to shop at these discount retailers. Let's take a look at each to find out why.
Which retailers are stellar
Let me say that I don't care where celebrities shop or what they do, but it seems I am quite alone. I also admit I personally prefer to shop at TJ Maxx and Target--Black Friday at Wal-Mart is my idea of hell.
That said, Wal-Mart's stock had been performing well over the last few years, breaking out during the recession. This year it has underperformed the S&P 500, only up 13% possibly due to notoriety over its workforce treatment, a supply chain tragedy in Bangladesh, and a Foreign Corrupt Practices Act ongoing investigation in Mexico, for which the company has already shelled out $200 million.
There are also executive compensation issues. CEO Michael Duke makes 1,034 times what the average Wal-Mart employee takes home in annual salary: $22,000. Note that Target pays an average market rate salary of $29,000 a year, while Wal-Mart pays 1% below market as the biggest private employer in the US.
What is promising about Wal-Mart is its e-commerce push. Attracting customers who don't like shopping at physical Wal-Marts or those who prefer the convenience of a website has been a top priority for the company since 2010. WalMartLabs, headquartered in Silicon Valley, explores social media, mining tweets within physical proximity of a bricks and mortar store to improve stock, improve the web platform, smartphone apps, and other data mining.
Anand Rajaraman, co-CEO of Kosmix, which Wal-Mart bought for WalMart Labs, has said Wal-Mart is more technologically innovative than people realize, and that it was actually a pioneer in data mining. Interestingly, Rajaraman once worked for Wal-Mart e-commerce nemesis Amazon.
In 2012 Wal-Mart only earned $9 billion in sales from its e-tail site, while Amazon racked up $61 billion from e-commerce sales. However, Wal-Mart earned $16.99 billion in net income from bricks and clicks last year, and has 200 million customers worldwide. Amazon, meanwhile, had a net loss of $39 million in 2012. Wal-Mart has the cash flow and income from bricks and mortar stores to carefully build out its web platform and distribution system.
More upside here
Target is no slouch at data mining itself, as it has been targeting specials and promotions based on customers' buying history for years. What it does shine at is localization of inventory for its stores, its designer collaborations, which bring in a more sophisticated shopper, and a more pleasant shopping experience than Wal-Mart. In addition, its e-commerce site is well-designed and easily navigable.
Its merchandise is higher quality than Wal-Mart's and prices are comparable. The company has several upside catalysts: its urban Target stores, downsized and aimed at higher-density urban dwellers; its move into international with 124 Canadian stores to open this year; popular designer collaborations; and smaller initiatives like its plans to sell more organic food.
Target also outranks Wal-Mart at number 22 on the Forbes Most Admired companies list (Wal-Mart is at 27). Target has a slightly higher trailing P/E of 16.42 to Wal-Mart's 14.93, and a slightly lower yield of 2.00% to Wal-Mart's 2.50%. Investors can take heart that the PEG at Target is lower at 1.46, compared to Wal-Mart's 1.55.
Target has much more room for expansion, operating a fraction the number of Wal-Mart and Sam's Club stores worldwide. Its stock has been performing better than Wal-Mart, up 19.86% over the last year. If you think your portfolio needs exposure to a big box retailer you'll likely get more upside from Target.
Thrill of the hunt
The big winner for stockholder gains has been specialty apparel and home fashion off-price retailer TJX Companies, which owns TK Maxx, (the European version of TJ Maxx), TJ Maxx, Marshall's, and Home Goods. The stock is up 22.30% this last year.
Although the main attraction for its customers, the "Maxxinistas," is the thrill of the hunt at the bricks and mortar stores, TJX is venturing into e-commerce with a $200 million cash purchase of e-commerce site Sierra Trading Post last December. Explaining their e-tail strategy, CEO Carol Meyrowitz said of the buy, "We continue to plan on launching e-commerce sites for TJX brands and this acquisition adds immediate scale, capabilities and infrastructure in e-commerce, which we can leverage in that regard." It will be interesting to see if TJX can eventually translate that thrill of the hunt to an e-commerce site.
Meyrowitz was a new addition to Barron's list of 30 Top CEOs in March. The Head Maxxinista herself presides over 3,000 stores in six countries. At a recent investor presentation the company spoke of its huge "global pencil," as they call it, for buying merchandise from 15,000 vendors internationally and keeping inventory fresh and exciting.
TJX has the highest trailing P/E at 19.18 and the lowest yield of 1.10% compared to its peers. However, its payout ratio is lower at 18%, compared to 33% and 32% at Wal-Mart and Target, respectively. It has raised its dividend for 17 years with a 26% increase in March. The PEG is also the highest at 1.61.
Three different ways to shop
Wal-Mart attracts the lower-end consumer, but an e-commerce push with its WalMartLabs could generate some internet alpha. It's the world's biggest retailer but the stock has lost some mojo. Target, with its higher quality merchandise and low PEG, still has upside (and celebrities seem to like it best, too). TJX is just a solidly run company with madly loyal customers. As for me, I would rather load up a portfolio cart with Target and TJX.
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