This is hot. That's not.
We've all fallen into the trap — classifying people, places and things using sweeping generalizations. While this is an inappropriate practice at any time, it's especially prevalent in retailing.
Recently I've been trying to unravel why generalities are so popular. Sure, they make life so much easier. Malls are dinosaurs (or better yet, no one's going to malls anymore). Discounters are hot. Department stores are not. Oh, and deep discounters, they're great!
Uh, no they're not, at least not all of them. Dollar General saw a 5% comp-store sales gain in September, while off-price merchant Factory 2-U Stores saw a 5.1% decline. While most discounters are doing better than most department store/full-line retailers, having a quorum in this business doesn't give you voting rights over the entire sector.
Personally I love it when I hear that specialty apparel retailers are on the skids. Not literally, mind you, but I just love to find exceptions to the “rule.” Yes, apparel purveyors like Talbot's have been struggling of late, but then J Jill and Chico's are still tearing up the sales.
And that's the problem — not only are broad-brush statements notoriously inaccurate, they perpetuate myths and inaccuracies. For example, are all REITs the same? No way. Even all mall REITs aren't the same. Companies pursue different strategies for different reasons, and not just to be different. Simon Property Group and General Growth Properties are often lumped into the same “mall REIT” pot by Wall Street analysts because they happen to own and manage huge mall portfolios. Thing is, their operating strategies are completely different.
But “sectors” on the Street are the natural order of things. They keep companies in nice, tidy buckets so investors can quickly gauge how “the market” is doing. Ever notice what happens to mall REIT stocks when monthly retail sales are released? Hello? Does anyone remember that most mall leases are for a minimum of 10 years? Does it matter that percentage rents account for a miniscule piece of the average mall's total revenue? Apparently not to many of the people entrusted to make critical buy/sell decisions every day.
Obviously the retail sector holds no monopoly on generalists. Watch the businesson any major TV network and you hear it every night: “The tech sector took a hit today when Intel preannounced lower-than-expected earnings for the third quarter and lowered its guidance for Q4.” Sound familiar? On the same day, an announcement by Hewlett-Packard or Dell of inline earnings or a new joint venture that could open new revenue streams and reward investors with millions in market value might not even rate a headline rolling across the bottom of the screen.
That's a pity. But we'll be mindful to get it right.