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We had a great turnout for our Money and Markets “Editor for a Day” contest … and it was extremely difficult to pick a winner. If you participated, thank you very much for sharing your thoughts with us.
After sifting through all the entries, we chose the following story from Daniel Lindley of Naples, Florida. Daniel’s thesis on spotting the next big retail failure is both unique, insightful, and entertaining. For his efforts, Daniel won $1,000 and the opportunity to share his story with you. Congrats, Daniel!
— Martin
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Wall Street has generated a large and sometimes contradictory set of sayings to explain the mysteries of the market over the years.
Sell into any rally, the wise ones say — usually some time after they tell you that the trend is your friend. Buy any dip, they urge, until they warn you never try to catch a falling knife.
As goes January, so goes the year. Until summer approaches, that is, when they advise you to sell in May and go away.
Buy value; no, buy momentum; just buy an index.
It may be true that nobody rings a bell at the market bottom, as another Wall Street saying has it. But someone does ring a bell at market tops, at least as far as ill-fated mega-retailers are concerned.
I’ve been driving by the Bridgehampton Commons in the Hamptons since that shopping mall was built nearly 40 years ago. Based on my casual but common-sense research there, I propose a small but useful addition to the lore of Wall Street maxims. I call it …
The Bridgehampton Bummer: “Beware the retailers of summer; if they’re in Bridgehampton, they’ll be a bummer.”
My newly minted motto may not be as melodious or pithy as some Wall Street sayings.
And it’s more narrowly focused than most. But so far, it’s been deadly accurate.
Since the demise of the Commons’ first anchor-store tenant, W.T. Grant, in 1975, the Bridgehampton Bummer has had a perfect record in forecasting the dismal fate of a small set of big retailers.
Every one that’s located there has gone bankrupt, sooner or later. They’ve all been publicly traded — till they ceased to exist, that is.
As you crawl your way east along gridlocked Route 27, you’ll pass by the Bridgehampton Commons, the easternmost shopping mall on Long Island, just before you enter the quaint village of Bridgehampton.
To the east, through East Hampton, Amagansett and all the way to land’s end at Montauk Point, there’s not a mall to be found. Not even a 7-Eleven or a McDonald’s. The puritanical town fathers of East Hampton long ago implemented strict zoning that outlawed such gaudy fleshpots of modern commerce. Even in the looser, more cosmopolitan town of Southampton, malls are rare.
But one exception was made, in a former potato field in Bridgehampton, for the Commons. At that, it’s certainly no Mall of America. It has no rides, nor even a food court.
The Commons is not even contained under a roof, like most American malls. In fact, it can seem a bit weathered. But that’s just part of its low-key Hamptons charm, like the cedar-shingled 18th-century houses and the other reminders of a quieter, slower era.
Although it may appear a bit frayed at the edges, the Bridgehampton Commons could in fact be a potential gold mine for investors familiar with its history. Or, more exactly, the history of the big-box retailers that have anchored it over the years.
The fact is that, like many a business in the Hamptons that has come and gone, each of its major anchor retailers since its inception has led a brief, doomed life.
All went bankrupt eventually: W.T. Grant in 1975; Woolco, 1983; Caldor, 1999.
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| W.T. Grant was the first retailer to suffer the Bridgehampton Bummer … |
All were large companies of long standing — Woolco was a subsidiary of F.W. Woolworth’s, the venerable five and dime that dated back to 1878, Grant’s got its start in 1906, and Caldor began in 1951.
To a company, they sank — not just the Bridgehampton store, but the entire corporation — after establishing a beachhead in the tony but isolated Hamptons. They came. They saw. They conked out.
Imagine the potential payoff for those who caught on to the prognosticative power of the Bridgehampton Bummer: shorting the stocks of any one of these companies would have made an investor a small fortune in the long run.
What’s the explanation for this unerring market indicator? Why do big-box retailers march lemming-like to the end of Long Island and into a sea of red ink?
Corporate hubris, overkill and overexpansion would be good places to look for an answer. It’s the nature of big corporations, especially retailers, to grow. The more stores, the more revenue, after all.
Those that don’t grow must die, some say. OK. But those that do grow can die, too.
Especially those that try to grow too fast, and force an unnatural growth. For many retailers, it’s all too easy to increase revenues in the short term and impress Wall Street by expanding at a cancerous rate. This means building stores where they shouldn’t be, after all the good spots have been taken.
The Commons, out there in the paved-over potato fields of eastern Long Island, is one such place. It’s one of the last locations where a retail chain can add another link after it’s exploited richer pickings in more populated areas.
Worse, the Hamptons, glitzy though they may be, have a highly seasonal economy. Like what’s left of the local farm fields, the Hamptons economy greens up splendidly for two or three months, then lies fallow the rest of the bleak year.
Generations of local merchants have learned to live with the fat months and the lean. Big, corporate retailers, headquartered in faraway cities with year-round economies, have not.
No matter that these corporate outposts at the Commons lure droves of shoppers in season with lower prices than local competitors. New York’s long, bone-chilling winter months separate the survivors from the also-rans here; those who are in it for the long term, versus those who mark their calendars to quarterly earnings reports.
Thus it was RIP for Grant’s. Adios, Woolco. Adieu, Caldor.
How might investors profit from the Bridgehampton Bummer, beyond knowing where to get a deal on plastic patio furniture?
By looking at the current big-box occupant of the Bridgehampton Commons, of course!
That would be the retailer everyone loves to hate: Kmart. Kmart, through a series of deft maneuvers by the Greenwich, Conn., hedge-fund titan Edward Lampert, is now part of Sears Holdings.
Thus Lampert has combined two of the oldest, and the most outdated, retailers in the land. Despite occasional attempts to spruce up its stores over the past several years, Kmart still operates the dowdiest emporia in America.
In other towns, Wal-Mart and Target are beating the stuffing out of Kmart. In Bridgehampton, the big K is given good competition by any number of stores in the village core a few minutes away, and by the Wal-Marts and wholesale clubs a few miles to the west in Riverhead.
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| Investor Edward Lampert has combined two of the oldest, and the most outdated, retailers in the land. |
Lampert is said to revere Warren Buffett. And it’s likely that he made a hefty profit buying Kmart out of bankruptcy and merging it with Sears. But the fact that it’s been a good money maker for Lampert doesn’t mean that it will be so for others.
I come here neither to praise Lampert nor to bury him. I only wish to shine a light on the stock, which catapulted from the 20s a few years ago to around 180 last summer — even though the same-store sales of Sears and Kmart have been lukewarm at best and they both represent an outdated concept of retailing.
During the recent market turmoil, Sears Holdings has fallen even more, down into the 60s.
Technicians might wonder at the stock’s chart, and assume that gravity will ultimately bring down even a high flier such as this.
Fundamentalists might balk at its high price-to-earnings ratio or low return on assets.
Me? I rely on the best Wall Street indicator I know: the Bridgehampton Bummer.
Or, to cite one more Wall Street adage: Nobody ever went broke taking profits.
Yours for happy returns,
Daniel
Daniel Lindley was chosen as the winner of the “MaM Editor for a Day” contest. The opinions expressed are that of the writer, and may not necessarily represent those opinions of Weiss Research, Inc., Money and Markets or any affiliate. The opinions and information contained herein has been obtained or derived from sources believed to be reliable, but we can not guarantee its accuracy and completeness, and that of the opinions based thereon.
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Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Tony Sagami, Nilus Mattive, Sean Brodrick, Larry Edelson, Michael Larson and Jack Crooks. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Kristen Adams, Andrea Baumwald, John Burke, Amber Dakar, Dinesh Kalera, Christina Kern, Red Morgan, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau and Leslie Underwood.
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