How to identify strong retail stocks
Instead of trying to predict the “next big trend,” focus on what consistently separates strong retailers from the rest:
- Sales growth: The best retail companies consistently expand the revenue they generate from the products they sell.
- Same-store sales: Same-store sales, or comparable-store sales, is a retail-specific revenue metric that evaluates revenue growth for stores in business for at least a year.
- Earnings growth: A retailer can grow revenue but remain unprofitable. Investors should be cautious about buying shares in retailers that struggle to increase their earnings as measured by earnings per share.
- Seasonality: Many retailers do a large part of their annual business during the holiday season in November and December.
- Real estate metrics: If a retailer owns a lot of real estate, its value can comprise a huge portion of the company's overall worth. Investors can also evaluate how efficiently a retail company uses its real estate with metrics such as sales per square foot.
- Growth of e-commerce sales: The best retailers use their network of stores to their advantage by offering services such as in-store pickup and local delivery. Retail businesses without a strong online presence will likely have increasing difficulty competing with their peers.
- Balance sheet strength: When considering investing in a retailer, look for plenty of cash and manageable debt on its balance sheet.
Strategies for investing in retail stocks
Two approaches tend to work well:
1. Buy businesses with durable advantages.
Focus on retailers that have a durable competitive advantage. For example, Walmart's scale enables it to source products more cost-effectively than its competitors and offer bargains that even e-commerce giants often struggle to match.
Beyond the companies on the list, look for cost advantages, products that don't depend on short-term consumer preferences, and products that people will still buy even if the economy weakens.
2. Build positions over time.
It can be wise to build positions in retail stocks over time, rather than buying all at once. Retail stocks (especially smaller and fast-growing retailers) can be rather volatile over short periods, so by averaging into a position, you can ensure you'll have a mathematically favorable average share price.
Key trends in the retail industry
The retail landscape has evolved considerably over the past few decades and continues to do so. Here's a brief rundown of the key retail trends to keep an eye on in 2026:
- Affordability: To put it mildly, the inflation of the past several years and the somewhat weakening job market have left consumers feeling financially squeezed and uncertain about the future. Discount-oriented retailers have been some of the best performers recently.
- AI and agentic shopping: According to some reports, ChatGPT and other AI tools now make up 15% or more of referral traffic to many retailers. This could certainly increase in the coming years as these tools evolve.
- Omnichannel retail: Customers want the ability to shop online, in-store, and a combination of the two (like ship-to-store or in-store pickup). This has been a major trend of the past decade, and could continue to grow.
