Black Friday is a long-standing tradition in the retail world that officially marks the beginning of the holiday shopping season. Each year, stores open up their doors for massive hordes of deal-hungry shoppers. Even though many consumers appreciate Black Friday deals, one company's new Black Friday policy is sowing seeds of anger among consumers.
K-Mart, a subsidiary of Sears Holdings (NASDAQ:SHLD), is under fire for a recent announcement that K-Mart stores will stay open for 41 hours straight, starting at 6 a.m. on Thanksgiving Day. Will this new policy be a large issue for Sears' profitability, or are other factors at work? This unwise move on K-Mart's part won't be a major factor harming Sears, as the success of the stock is now based on financial engineering.
The big picture
In a previous Motley Fool piece, "There's More Than Meets the Eye With Sears," I noted that the success of Sears stock is not based on its floundering retail operations. Rather, as Michael Santoli of Yahoo! Finance puts it, "...the market understands there is good value now trapped within the company." Sears, despite its retailing shortcomings, has produced impressive market-beating gains over the past 20 years.
With this consideration in mind, the effect of consumers threatening a Black Friday boycott is not going to produce earth-shattering declines for Sears stock. Sears has now become a large financial experiment under the helm of CEO Eddie Lampert, who is trying to find the best way to carve up Sears' assets to produce big returns.
Staying open all day on Thanksgiving has upset many K-Mart employees and consumers. But, when the business strategy of Sears executives is to systematically draw down retail operations anyway, the impact of this Black Friday boycott will be muted. This is not to mention the fact that Black Friday might be losing its fundamental importance to the retail market.
Two alternative retailers to consider
Plenty of K-Mart competitors are also opening on Thanksgiving, but are waiting until the evening to do so. Two of these companies, Macy's (NYSE:M) and Kohl's (NYSE:KSS), merit the attention of prospective investors. It's worth noting that both Macy's and Kohl's offer impressive quarterly dividends, while Sears does not offer a dividend.
Macy's, the No. 1 department store chain in the U.S., is taking action to compensate for the Internet age by cutting down on store size while boosting the appeal of its stores and expanding its online order network. With robust profitability and strong free cash flow, Macy's seems to be taking the right steps to consistently return value to shareholders.
Kohl's has a competitive advantage over Macy's for middle-class families due to lower prices for goods. With a management team dedicated to improving efficiency and strong excess cash flow, Kohl's stock offers investors a solid play on retail. Both Macy's and Kohl's offer upbeat guidance for the Christmas shopping season -- a crucial time for large retailers. The rosy forecast, coming during a time of lowered consumer confidence, is a good sign for investors in both companies.
K-Mart's move to stay open on Thanksgiving Day illustrates just how irrelevant Sears has become in the retail sphere. Sears is a more volatile stock to own than Macy's and Kohl's, as there is no guarantee Sears CEO, Eddie Lampert, will be able to successfully pull off Warren Buffett-esque financial stunts. Sears has developed into a "feast or famine, all or nothing" type of stock, which will either hit it big or crash and burn. Macy's and Kohl's, on the other hand, are much more stable and have proven track records of success in the retail market. I'm going to keep watching this developing story at Sears closely, as investors who take great risk might get a great reward.
Evan Buck has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.