From the Desk of MFAM: All Sales Are Online Sales

Online commerce is kind of a big deal. The segment now accounts for approximately $250 billion of retail sales, or about 6% of total retail sales, and is growing faster than retail sales overall. With improving shopping, payment, and delivery technology, one should expect this trend to continue. But it's not just Amazon.com that will benefit. In fact, online capabilities are proving to be more and more of a differentiator in performance across the retail spectrum.

The tale of the tape
Compare, for example, Williams-Sonoma (NYSE: WSM  ) , the parent of Pottery Barn and West Elm, and Pier 1 (NYSE: PIR  ) . These similarly positioned home-furnishing retailers should both be benefiting from recent improvements in the housing market. Yet over the past 12 months Williams-Sonoma is up more than 20%, while Pier 1 is down more than 20%.

Although many factors have undoubtedly contributed to the success at Williams-Sonoma and the malaise at Pier 1, it's not a coincidence that the company that has done well is recognized as one of the best online marketers in its space and that roughly 50% of its sales are online. Pier 1, on the other hand, is just two years into its e-commerce strategy and gets just 4% of its sales online. For that to be true of a company in 2014 is flat-out embarrassing. Did Pier 1 think the Internet was a fad for the past 20 years?

Measuring up on the Web
Admittedly, for competitive reasons, most public companies are loath to disclose potentially helpful key performance indicators, so it can be difficult for investors to discern whether a company they are analyzing is good or bad at online commerce. But there are workarounds. One of the handiest I've found is to simply check how many Twitter followers and Facebook likes a company has -- watching for change over time and comparing their online presence with their overall sales.

Here, for example, is how five retailers targeting affluent women stack up:

Retailer

TTM Sales

Twitter Followers

Facebook Likes

MFAM Social Score (0-10)

ANN

$2.5 billion

59,100

1,076,000

0.7

Chico's (NYSE: CHS  )

$2.6 billion

31,000

878,000

0.5

L Brands (NYSE: LB  )

$10.8 billion

3,790,000

24,594,000

5.8*

lululemon athletica

$1.6 billion

592,000

915,000

4.3

Urban Outfitters (NASDAQ: URBN  )

$3.1 billion

1,490,000

3,988,000

6.1

*This number is potentially juiced by the widespread appeal of the company's Victoria's Secret accounts.

Urban Outfitters is punching way above its weight when it comes to its online social-media presence, while Chico's is woefully behind. Of course, this is just one set of data among many that investors should look at when considering a retail-sector investment, but as more and more sales move online, it seems obvious that those who will be most successful are those who are already good at selling things online.

Put that competency together with a reasonable valuation, and that's why we recently concluded that Urban Outfitters may be a promising investment opportunity.


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  • Report this Comment On May 05, 2014, at 5:07 PM, rtm26 wrote:

    I think the social data is understated for some of the retailers. ANN only reflects Ann Taylor and does not appear to add The Loft (1.4M likes). CHS only reflects their flagship brand (Chico's) and is missing the company's other brands. White House | Black Market, has over 1.1M Facebook likes, Soma has 400K and Boston Proper has about 120K.

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