Displaying items by tag: retail

(New York)

Morgan Stanley put out a very direct research report this week. In it, it tells investors which stocks they definitely should not buy. The bank selected 22 “Secularly Challenged Stocks” which it says no one should own right now. Here is a selection: Alcoa, AMC Networks, Abercrombie & Fitch, CenturyLink, Macerich, Cheesecake Factory, H&R Block, Michael’s, and Molson Coors Beverage.

FINSUM: A lot of names one would expect here, but some that are a bit of a surprise. We certainly would not want to own Macerich given the state of commercial retail real estate, but CenturyLink would not seem nearly so dangerous.

Published in Eq: Total Market

(New York)

The stock market may be complicated right now, but some things are abundantly clear. One of those is how the retail sector, and retail stocks in general, are going to react to the crisis. The answer is that big players are going to continue to grow, largely at the expense of smaller retailers. Bigger companies, with sophisticated websites and massive free shipping operations, have been thriving as small companies falter.

FINSUM: Think Amazon and Walmart, maybe Shopify (see other story about Shopify from today), as these companies will be the ones winning orders from customers over the short and long-term.

Published in Eq: Value
Friday, 08 May 2020 10:11

Stay Away from These Sectors

(New York)

This COVID crisis has made whole areas of the economy uninvestable. Many companies have had to halt operations entirely and as the lockdown drags on it has become more clear that many may not reach their previous levels for years (if ever). One problem is that many stocks and sectors appear to be “stubs”, or stocks that have very binary value propositions. Unless things go very right, they are worth almost nothing. Energy is a good example. If oil prices don’t come back and demand for oil stays low, what is the US oil sector worth? Big brock and mortar retailers are the same—what are they worth if the re-opening doesn’t go well?

FINSUM: This is a useful way to think about some sectors, but the outcomes are probably not as binary as they may seem right now.

Published in Eq: Energy
Wednesday, 06 May 2020 12:21

A Commercial Real Estate Crisis is Brewing

(New York)

Hotels are increasingly in trouble. About a quarter of all hotels in the US are now behind on their loan payments. COVID has obviously had a huge effect on hotel occupancy rates, which is now causing financial difficulties for the hotels and their lenders. The situation echoes other data from across the commercial real estate sector. For instance, Vornado Realty Trust yesterday said that it had only collected 53% of retail rents in April, and 90% of office rents.

FINSUM: We think it is critical to remember that re-opening is not a sign that all is clear in commercial real estate. Even once they re-open, restaurants and retail stores are still very likely to be doing MUCH less business than before they closed, and since a lot of cash reserves have probably been used up, their financial situation and thus the sector are just going to grow more precarious.

Published in Eq: Real Estate


COVID Loan Tracker was started by small business owners Duncan and Rita MacDonald-Korth to help their fellow small business owners understand when and where PPP and EIDL advance money starts flowing. The site works by crowdsourcing knowledge on applications and loan disbursements. Our goal is to help the small business community and empower journalists with the data they need to keep the government accountable.

Retail is one of the largest sectors of the US economy. Tens of millions of workers earn their living in the sector and millions of small business owners employ them. However, this group—at once the most visible and vulnerable victims of the lockdown—are being left out in the cold by the PPP initiative. It has already been well established that “large” small businesses have fared much better in the Paycheck Protection Program, but retail small business owners may have even more to lose.

The common practice in commercial leasing to small businesses in the US is that landlords require tenants to put up personal guarantees in order to execute a lease. That means that if a business is unable to afford the rent, their own personal assets are the on hook to pay the landlord. Small business owners usually have no choice but to accept the terms—if they do not, they cannot lease the space. Since almost all landlords require this, small business owners are left with a stark choice: commit to a personal guarantee, or don’t open a business.

While it is clear at this point that smaller small business owners have not been helped by this program, that is doubly true for retail owners, for whom payroll is usually a minority expense compared to rent, utilities, and inventory. Accordingly, the small shop owners of America—hardware stores, clothing boutiques, nail salons, dry cleaners, cobblers, bar owners etc are at grave risk of losing not just their business, but their own assets, such as savings, houses, future income. They stand to lose everything.

Published in Eq: Total Market
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