Retail Winners and Losers: Beyond the Ice Age

Shah Gilani|August 12, 2020

What investors, analysts and retailers call the Amazon effect, I call the “Amazonation” of retail, of America, which happens to be just the tip of the “Retail Ice Age.”

Bricks and mortar retailers in the U.S. were just starting to come to grips with their own self-inflicted mistakes when Amazon.com Inc. (NasdaqGS:AMZN) shone an even brighter light on an even bigger mistake they were making.

Now, retailers are facing an even more deadly existential threat to their bricks and mortar as well as their online existence, no thanks to the coronavirus.

Why to Buy This, NOT That Amazon is only the tip of the iceberg. It’s an ecommerce giant, and it’s not going anywhere, anytime soon, certainly not like some of the retail “giants” who are falling to their knees as online shopping, and the coronavirus pandemic, rages on and kills off the last of a dying breed: the American shopping mall. Retail is only one of the many industries that are toppling, with newer, fresher, better companies taking their place at the helm. I’ve dug deep into every industry, turned over every rock, and found which companies are collapsing, and what’s taking over. Retail, technology, medicine, education, you name it – I found which companies to buy and which to kick to the curb. I’ll be covering it all in a stock-picking lightning round event taking place tomorrow, Thursday, August 13 at 1:00 p.m. EST, and I hope to see you there. I’ll be running through over 50 stocks, telling you what’s hot, what’s not, what’s the real deal, and what to take out with next week’s garbage. Click on the link below to add it to your calendar. Date: Thursday, August 13 Time: 1:00 p.m. EST Google Calendar iCal Calendar Outlook Calendar

Here’s how bad things are in the retail patch, why they’re about to get even worse, and a likely list of who’s going to make it and who won’t; in other words, as far as their stocks, a “buy this not that” list.

Shopping Malls Spread Like Wildflowers… Or Weeds

You can’t argue with success, until you realize the “you can’t get enough of a good thing” isn’t always the case. For retailers, especially chain retailers, for decades, more stores in more locations meant more exposure, more sales, more profits and drove them to expand as quickly and widely as they could.

The advent of shopping malls, which took root in the late 1950s, and grew across the country like fields of wildflowers, or weeds as the case appears today, exponentially accelerated growth prospects and profits for retailers.

Every retailer wanted, needed to have a presence in a mall, in as many malls as they could get into. And malls were only too happy to make space available for chain retailers and anyone else who wanted an “in-line” storefront well trafficked by shoppers often drawn to huge mall “anchor” tenants.

By 1970, there were 30,000 covered malls across the U.S.

As retail chains took advantage of extraordinary economies of scale in marketing, branding, and distribution, they looked for more malls to take up residence in. Mall builders and operators accommodated their demand.

Malls themselves, besides becoming destinations for shoppers, for families, as a place for kids to hang out, were immensely profitable and got bigger and more and more profitable, for everyone.

From 1970 to 2015, the annual growth of malls in the U.S. was twice the country’s population growth.

By 2017, the peak year for malls, the U.S. was home to 116,000 malls, not including strip malls.

The fact is malls helped the U.S. become the consumer nation it is.

But as a destination, they were losing favor long before 2017.

Between 2010 and 2013, mall visits fell 50%. That falloff fed on itself, year after year, until today many malls are practically empty.

E-Commerce and How It Killed Retail

Online shopping, or e-commerce, made it clear to bricks and mortar retailers they had far too many storefronts, that cost far too much to merchandise, staff, and manage, not to mention far too much in rent.

Unfortunately, because of their size, reach, and embedded costs, especially long-term leases, retailers were slow to downsize their brick and mortar footprints.

They watched, idly by, for the most part, when Amazon and eBay launched in 1995. They didn’t think PayPal Inc. (NasdaqGS:PYPL) was as important as it was to online sales when it launched in 1998.

They didn’t understand that Alphabet Inc. (NasdaqGS:GOOG) launching AdWords in 2000 was a game-changer, how online shoppers could search the Web, and how advertisers could target the growing ecommerce crowd.

Old school retailers knew they were in trouble, and while they were venturing into online sales, they didn’t make ecommerce their top priority, they viewed it as part of what became “omnichannel” selling, and thought it would augment declining sales at bricks and mortar stores. It didn’t.

Even when Amazon launched its Prime service in 2005, expediting delivery to members for a flat fee, even after the first Cyber Monday launched on November 28, 2005, malls and their tenants didn’t start cutting to the bone.

For a lot of old-line retailers, venerable retail name brands and iconic chains like Sears and JC Penney, it was all too late. They hadn’t adapted. Even late to the game adapters found out they were too late.

The retailing world had moved on, leaving many of them bankrupt.

How Amazon and Coronavirus Brought Around the End of Shopping Malls

For mall owners and operators, store closings and bankruptcies robbed them of tenants, and of course rent.

According to Moody’s Analytics Reis, the national mall vacancy rate in Q1/2020 was 9.7%, the highest in decades.

Rent rolls are coming down too, that’s if tenants are even paying rent.

It’s bad enough that in-line retailers are closing stores and declaring bankruptcy, but anchor tenants closing is a much bigger deal for mall owners and operators.

In-line shops usually have “knockdown” clauses in their leases, which allows them to knockdown their rent when malls lose the giant anchors that are supposed to bring in the bulk of foot traffic in-line stores count on.

Then the coronavirus pandemic hits.

As if losing tenants and rents getting knocked down wasn’t bad enough, the pandemic shut malls down completely.

Even after re-opening, shoppers worry about central ventilation systems, central walkways, and sanitary conditions, to say nothing of passing empty, dark stores.

David Simon, CEO of Simon Property Group (NYSE:SPG), the largest owner and operator of malls in the U.S. citing the company’s Q2 earnings, said SPG took a $215 million hit on rent abatements and write offs on bankrupt retailers.

Taubman Centers Inc. (NYSE:TCO), another big mall owner/operator, turned a $169 million profit a year ago into a $41.8 million loss in Q2 2020, thanks to rent abatements and non-payments.

Green Street Advisors, an analytics and advisory firm that specializes in real estate and REITS, estimates malls will see a 20% decline in cash flow this year versus 2019.

Investment bank Cowen Inc. counts 1200 covered malls left in the U.S. and says that number will fall to 800.

Buy This, Not That

Besides thousands of retail stores closing, retailer bankruptcies, and the diminishing list of survivors likely to thrive, which I’ll get to on Friday, investors need to know what to do with mall owners and operators.

Don’t Buy: CBL Associates (NYSE:CBL)

It’s too late for CBL Associates (NYSE: CBL) since they’re already preparing for bankruptcy and you missed shorting their stock when I recommended doing that months ago on my weekly live-stream.

But it’s not too late to get out of or even short other mall REITS.

Don’t Buy: Taubman Centers Inc. (NYSE:TCO)

Taubman Centers Inc. (NYSE:TCO) is on my short list of big losers and worth shorting, if you hopefully don’t own it. Taubman was going to sell itself, mercifully, to Simon Property Group, that is, until the pandemic hit. Now TCO’s adrift and in danger of collapsing, which is why I like shorting it, or buying puts on it.

Don’t Buy: Simon Property Group (NYSE:SPG)

As far as SPG, they’re making waves, and not necessarily in a good way.

Simon’s been buying bankrupt retailers like Forever 21, and eying several others. Why? So, they can pay rent, which makes no sense to me. But what do I know, other than they’re losing money, is that they’re buying bankrupt losers to keep from losing rent while they risk losing even more than rent on their new “out of the box” Hail Mary plays.

Simon might lease old vacant anchor space to Amazon for Amazon’s distribution network, which might support SPG stock, if a deal gets done.

However, there is no deal just yet and even if there is one, SPG’s in-line mall tenants aren’t going to take kindly to the Amazon effect that killed their future, anchoring their empty malls.

There’s going to be a time to short Simon, stick with me here, I’ll tell you exactly when.

And there are plenty of other retail shorts to put on and more than a few winners to buy, which I’ll tell you all about on Friday.

I’ll be broadcasting on Thursday, August 13 at 1:00 p.m. EST, with more winners and losers, and you can keep track of your cash vs. trash list using this handy worksheet. I’ll be talking through tons of companies, and a lot of them were picked by you! Make sure you tune in, so you can find out whether your favorite is a winner – or a loser.

When I say I’m covering everything, I mean EVERYTHING. I’ve got over 50 stocks that I’ve combed through, rated, and ultimately decided: is this a buy… or is there something better, much better?

And, more importantly, decided: Will this sink your portfolio?

I’ve picked apart your favorites and now, I’m coming to you, telling you to buy this, not that.

It’s all coming at you on Thursday, August 13 at 1:00 p.m. EST. Make sure you’ve added the event to your calendar so you don’t miss out (link is in the above sidebar).

Until then,

Shah