It takes more than a high-quality product to make a great stock. Don't believe me? Let's take a quick look at four notable retail companies whose success -- or failure -- owes to more than just their merchandise.
Crocs (Nasdaq: CROX ) appears to be exactly what it promised when it debuted – a one-trick pony. There was no obvious way for the company's retail product to evolve. It had no other uses. It was, and I think will remain, comfy shoes. As a result, Crocs' stock had a quick wave up, and has been a disaster ever since.
Given its gloomy, Gothy image, you might think Hot Topic (Nasdaq: HOTT ) was different from other kinds of retail. But its flashy stores, loud music, and colorful floor arrangements are just a smokescreen. Hot Topic sells the same things a lot of other stores do -- its products simply bear different branding.
Hot Topic isn't about style in the true designer's sense of the word. Indeed, the company's own name makes its mission clear: It sells you the hot branded products of the moment. After a while, though, you'll wonder why you have 10 nearly identical T-shirts, differing only in the logos they display. Investors who got in early rode the stock to a 10-bagger, because Hot Topic was fairly novel when it first appeared. But since the 2004 top, shareholders have been hurting.
For a long time, Gap (NYSE: GPS ) rode high on a tsunami of simple, high-quality products sold at a reasonable price. Sure, there was always competition, but Gap's products generally delivered on shoppers' expectations. But the culture of style intersected with Gap's products for only so long, and then diverged. Now, simple, high-quality products are a commodity -- and so is Gap. The stock peaked in 2000, and it's been range-bound for eight years since.
Timberland (NYSE: TBL ) , however, is a totally different case study. It's not just a boot company -- it makes all different kinds of footwear. More importantly, Timberland's products have evolved along with its consumer base. The company redesigns styles and does not try to be all things to all people, like Gap or Hot Topic. Timberland serves a niche, and serves it well. It doesn't have much overhead, because it only has a few stores, selling most of its goods through other retailers. Better yet, it has lots of cash and no long-term debt.
True, a five-year Timberland chart shows a 55% decline. But if you look at the longer term, you'll see it's performed quite well since 1992. Much of its five-year decline has come since the economy went south in 2007. I'd also suggest that going forward, Timberland's distinctive, ever-developing, and well-focused product line gives the company a far better chance of reaching its old highs than the rivals I've mentioned above.
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