Is your portfolio prepared for Retail 5.0?
Hedgeye Retail analyst Brian McGough presented his thoughts on the history and future of retail during an institutional call last week. McGough highlighted the companies which could end up filing for bankruptcy, as well as the companies that could double from here.
(The video above is an excerpt from his hour-long presentation.)
In light of the challenging retail environment, most analysts who cover the space agree that Retail is ‘uninvestable.’ McGough argues such a consensus call is too simple. There are many parts of the space that are very investable – you just have to carefully pick your spots.
Why? We think 20% of today’s companies are likely to account for 90% of tomorrow’s market cap. Bankruptcies should keep accelerating – both public and private. Another important trend to watch is the disintermediation of Strip Malls, Big Box Specialty and Off-Price centers.
Most analysts also don’t properly measure the rise of e-commerce. There’s a square footage equivalent associated with e-comm. By our math, there is 13.6 billion in Retail-related square footage today which will grow to 26 billion over the next 20 years.
In a more challenging, dynamic retail environment, mergers and acquisitions are on the rise. On that front, McGough says:
“As far as this wave of M&A I think we have to think really big. Don’t let people tell you that can’t happen, or this company is too big or no one would buy this. That simply can’t be said. We’re going to see a lot of cross sector deals.”
This is critical context for investors in Retail stocks, McGough says, and the coming two decades will present both risks and promising opportunities. Be careful. “The box you don’t think outside of could be your coffin,” McGough says. Don’t get buried.