New Tech Leads to Profit Chances No One Saw Coming

Barron’s kicked off the short trading week with another head-scratcher:

One retailer’s stock has jumped 10% in 2018 — and there could be more to come.

Retail stock?

I doubt it. The article probably tells the story of a cutting-edge startup looking to challenge Amazon in the online retail space.

Or a logistics firm helping shops streamline their inventory process using blockchain technology. An actual retailer with physical stores couldn’t possibly grab investors’ attention in 2018.

Or could it?

It just so happens the company profiled in the article is U.K.-based retailer Next (LSE: NXT).

As the headline notes, Next stock has already jumped double digits this month. After falling off a cliff in early 2016 and trending lower for the better part of the past two years, Next shares look ready for an extended comeback.

Another Retail Winner

Next isn’t the only big traditional retailer enjoying a comeback move to start the year. The SPDR S&P Retail ETF (NYSE: XRT) just capped off an impressive three-day run that pushed its year-to-date gains to almost 6%.

This performance even edges out the red-hot Nasdaq Composite. Beleaguered retail names like J.C. Penney (NYSE: JCP) and Macy’s (NYSE: M) are helping lead the charge higher.

The anti-retail narrative is strong still. But as we’ve said all along, there’s more to the “death of retail” story than struggling big-box retailers and empty malls.

Brick-and-Mortar Retail’s Saving Grace

It’s no secret brick-and-mortar retail has struggled to keep pace with online shopping experiences.

Digital Commerce 360, citing Department of Commerce data, reported that in 2017, “consumers purchased $107.00 billion worth of retail products on the web in the third quarter.”

This represents an increase of 15.5% compared with the third quarter of 2016.

Yet despite the ever-increasing footprint of e-commerce, brick-and-mortar shopping is still preferred by buyers.

People want to feel textures and assess size and scale. They want to try things on. Feel quality.

Physical retailers, by using augmented reality (AR) and increasing their web presence, have been able to merge the best aspects of online and in-store shopping together.

This has allowed physical retailers to bridge the gap created by the efficiencies of e-commerce.

As Rachel Arthur of Fashion & Mash notes, Google finds that 34% of users say they would use AR while shopping, and 61% say they would prefer to shop stores that offer AR.”

People still want to shop in stores. They just need a more streamlined experience to get them there.

Retail Tech Turns Best Buy Around

One story in retail few are talking about is Best Buy’s (NYSE: BBY) turnaround.

Yes, really. Best Buy.

Since January 2015 the stock has more than doubled in value. Post-holiday season, the stock is still rising. Check the action over the past month:

New Formula

What’s the secret behind BBY’s amazing turnaround?

Simply put, they used technology to take Amazon square on.

BBY drastically upgraded their website and app as well as their web/in-store omnichannel services such as online ordering with in store pickup.

The company also addressed one of the biggest challenges to brick-and-mortar retailers.

A phenomenon called “showroom shopping.”

“Showroom shopping” is when consumers assess a product at brick-and-mortar stores, but purchase them online for better deals.

By increasing in-store inventory, BBY drastically reduced the amount of “showroom shoppers” at their stores.

They’ve essentially converted stores into dual-functioning showrooms and inventory warehouses.

Will it be enough for BBY in the long term?

Only time will tell. If you had asked me five years ago which major retailers were most vulnerable to a full-frontal assault from Amazon, Best Buy would have been near the top of my list.

But clearly all is not lost for Best Buy or other major retailers.

Taking advantage of new technologies has helped physical retailers ignite an unexpected comeback.

One that’s silencing its critics with strong sales and rising share prices across the board.

At least for now.

For Tomorrow’s Trends Today,

Greg Guenthner

Greg Guenthner

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