8
2
1
4
7
5
3
6

Opus News & Insights

Mallrats
Saturday, June 4, 2016

opus capital managementBack in the 1990s, the biggest problem malls had was the mallrat, which was popularized in the eponymous cult classic. Despite their enthusiasm, mallrats loitered in crowded stores with no shopping agenda, and took up valuable space at the food court as well as autonomous units for mid-mall snacking. Shopkeepers feared the deleterious effects of mallrats on commerce, and tried to eliminate their presence through aggressive policing.

Fast forward 20 years, and many malls are desperate for patrons of any sort. Despite a tailwind from lower prices at the pump (though this has recently started to shift), Consumer Discretionary stocks have taken it on the chin this quarter. So far this quarter, the sector is the only negative performer in the Russell 2000 Value (R2KV), down over 3% versus a 3% gain for the R2KV.

The carnage is much worse in certain areas. Diversified Retail is down over 14%, both Luxury Items and Specialty Retail are off over 13%, and Textiles, Apparel and Shoes are down over 10%. Even restaurants, which heretofore have been immune from the malaise, are lower by over 6%.
Both large retailers like Macy’s (though now just around $10 billion in market cap, given its recent slide) and smaller mall-based retailers have cited declining mall traffic as the primary cause for their recent earnings and guidance disappointments.

There are multiple factors that have conspired to make the consumer callow as it relates to spending via traditional channels. First, at a macro level, we have seen an increasing share of consumers’ wallets dedicated to necessities, i.e., medical care and staples. The following graph from Pew Charitable Trust shows the increase in consumer spending on non-discretionary items:

opus capital management

From a demographic perspective, the rise of the millennials has caused a shift from an interest in goods to experiences. While we hear this anecdotally, there is also evidence supporting this contention, and the strong performance of certain industries within consumer, e.g., Casinos (+4%), Entertainment (+35%), Hotels (+1%), provides some corroboration.

Finally, disruptive competition has appeared in the form of the “Amazonification” of retail. A few graphs from The Economist demonstrate the burgeoning power of the online retailer relative to its brick-and-mortar competitors. While Amazon’s competition has tried to adapt by rolling out online shopping, the ecommerce portion of the “omni-channel” that is often cited by management, the mere presence of Amazon has changed the game in many ways.

opus capital management
While in isolation ecommerce may generate high returns, it often cannibalizes sales from brick- and-mortar locations, and serves to undermine the operating leverage for the retailer. Many companies have responded by attempting to rationalize store bases and close under performers, but, for some, it has not been enough, and a number of traditional retailers have filed for bankruptcy.

In terms of our portfolios, we have not been immune from the weakness we have seen in mall-based retailers. However, we certainly consider this secular headwind when testing our investment thesis for companies in the consumer area, and tend to favor those names that are able to mitigate this risk or that operate in more favorable areas within consumer discretionary.

While a sequel for Mallrats is in the making, it is unclear if malls themselves and the iconic names that comprise these monuments to consumerism will have a revival as well, or rather if a bloodbath ensues.





 
 
Subscribe To Our Blog

Blog Categories

  • Opus Insights
    • 07/10/2017 - Review of U.S. Small Caps - Ju
    • 07/06/2017 - Dividend Payer vs. Non Payer R
    • 06/15/2017 - Review of U.S. Small Caps - Ma
    • 06/13/2017 - Active Investing Is Not Dead,
    • 05/23/2017 - Opus Capital’s Small Cap Value
    • 05/18/2017 - Opus Capital Recognized as Top
    • 05/09/2017 - Review of U.S. Small Caps - Ap
    • 05/05/2017 - A Distribution Growth Juggerna
    • 05/05/2017 - Mexican Airports? Surely You C
    • 05/05/2017 - Opus Capital Mgmt. Launches In
    • 04/19/2017 - Interview with Adam Eagleston
    • 04/12/2017 - MicroCap Value Strategy Using
    • 04/10/2017 - Review of U.S. Small Caps - Ma
    • 04/07/2017 - Dividend Payer vs. Non Payer R
    • 04/07/2017 - Monroe Capital Is Ripe For A V
    • 04/03/2017 - Squeal Like a Pig? Not With WH
    • 03/24/2017 - ​Invest Like Zuckerberg, Not t
    • 03/03/2017 - Review of U.S. Small Caps – Fe
    • 03/01/2017 - Opus Capital Recognized as Top
    • 02/13/2017 - Review of U.S. Small Caps - Ja
    • 01/26/2017 - U.S. Microcaps Outperform in 2
    • 01/13/2017 - Small Caps Go Crazy in 2016
    • 01/12/2017 - Small Cap Rally Continues, Boo
    • 01/12/2017 - The Night is Always Darkest Be
    • 01/06/2017 - Review of U.S. Small Caps – De
    • 12/06/2016 - Review of U.S. Small Cap Value
    • 12/06/2016 - Oil Appreciation Day
    • 11/30/2016 - Opus Names Debra Gordon as Dir
    • 11/23/2016 - Opus Capital Recognized as Top
    • 11/22/2016 - Opus Capital: A 20-Year Retro
    • 11/11/2016 - The “Basket of Deplorables” Ra
    • 11/09/2016 - 2016 Election - The Morning Af
    • 11/08/2016 - Presidential Election 2016
    • 11/06/2016 - WSJ - "Junk Stocks" Strut, but
    • 11/04/2016 - Review of US Small Caps - Octo
    • 10/14/2016 - Living in a Material World
    • 10/13/2016 - Profit Owed to Leverage
    • 10/11/2016 - Observations on Poor Energy Co
    • 10/11/2016 - Independent Thinking Garners a
    • 10/05/2016 - Review of U.S. Small Caps - Se
    • 09/27/2016 - Review of U.S. Small Caps – Au
    • 09/19/2016 - Income Needs Have Insurers Loo
    • 09/01/2016 - Low Vol and Dividends a Crowde
    • 08/31/2016 - All Animals Are Equal, but Som
    • 08/26/2016 - Black Hole
    • 08/15/2016 - Review of U.S. Small Caps
    • 08/05/2016 - Robert Half International - a
    • 07/29/2016 - BGCP: Severe Undervaluation P
    • 07/13/2016 - Can Utilities Keep Going at Ma
    • 07/08/2016 - Review of US Small Caps
    • 06/30/2016 - Interest-ing Decisions Ahead f
    • 06/27/2016 - Negative Reality Bites
    • 06/04/2016 - Mallrats
    • 05/19/2016 - The Big Short (Interest)
    • 05/19/2016 - Energy and Oil Price Volatilit
    • 08/27/2015 - CHINESE CHECKERS - Volatility
    • 06/10/2015 - ​Black Gold, Texas Tea
    • 03/19/2015 - Don't "Yada Yada" Foreign Stoc
    • 02/17/2015 - Wealth Management Guide 2015
    • 02/16/2015 - 'Tis Better to Give and to Rec
    • 02/12/2015 - Navigating the Social Security
  • WM Newsletters
         
MEET OUR TEAM

Michael R. Knapke
  Michael R. Knapke
Manager - Marketing and 
Client Relations

View Bio
Joseph P. Condren, CFA
  Joseph P. Condren, CFA
Principal, COO and CCO

View Bio

  Nathanael A. Stewart, CFA
Associate Portfolio Manager
and Research Analyst

View Bio
Len A. Haussler, CFA, CPA
  Len A. Haussler, CFA, CPA
Founder
and Portfolio Manager

View Bio
John A. Ferguson, CFA
  John A. Ferguson, CFA
Principal
and Portfolio Manager

View Bio
Adam T. Eagleston, CFA
  Adam T. Eagleston, CFA
Principal
and Portfolio Manager

View Bio
Matt Mautino
  Matt Mautino
Operations Support

View Bio
David W. Wagner III
  David W. Wagner III
Research Analyst


View Bio
Nathan M. Bailey, CFA
  Nathan M. Bailey, CFA
Associate Wealth Advisor

View Bio
B. Rapking - Operations Associate
  Brad J. Rapking
Equity Trader

View Bio

  Jakki L. Haussler, Esq., CPA
Founder and CEO

View Bio
Kevin P. Whelan, CFA
  Kevin P. Whelan, CFA
Principal
and Portfolio Manager

View Bio
Debra Gordon
  Debra Gordon
Director - Marketing
and Client Relations

View Bio
Nathan A. Bishop, CFA
  Nathan A. Bishop, CFA
Principal
and Portfolio Manager

View Bio
  CONTACT INFO

221 E. 4th Street, Suite 2700
Cincinnati, OH 45202
Office: (513) 621-6787
  CONNECT WITH US

        
         
Copyright © 2017. Opus Capital Management. All Rights Reserved