About a week ago, Warren Buffett’s Berkshire Hathaway Inc. (NYSE:BRK.A)(NYSE:BRK.B) released its 13-F form, a SEC-mandated document tracking its holdings. Every big investment company has to disclose what it owns each quarter.
Because Berkshire is headed by the most famous investor of all time, its moves attract the most scrutiny. This quarter’s 13-F filing was no different. Buffett — or perhaps his key lieutenants — made a number of different moves, including adding to the company’s Apple holdings as well as buying more airline stocks.
One move got more attention than the rest, however, which was Berkshire punting one of its biggest positions. After holding shares for more than a decade, Berkshire’s 13-F revealed it has sold nearly all of its position in Wal-Mart Stores Inc. (NYSE:WMT), a position that was worth nearly $1 billion.
Even for Buffett, that’s a big move.
Analysts read into the situation exactly how you’d expect. Many pointed to Buffett’s comments about Amazon.com, Inc. (NASDAQ:AMZN) from the 2016 Berkshire annual meeting, when he said “It is a big, big force, and it has already disrupted plenty of people, and it will disrupt more.” In other words, even stodgy, old Warren Buffett has figured out traditional retail is on life support.
But that’s not the whole picture. Here’s why retail still has a long way to go before it dies.
Amazon isn’t the only game in town
When investors think of online retail, only one company comes to mind. Amazon is the Wal-Mart of the online world. It is a true behemoth.
That doesn’t mean that most traditional retailers are asleep at the switch. Not only are they investing millions (or, in Wal-Mart’s case, billions) to compete with Amazon, but retailers with traditional locations actually have certain advantages Amazon can’t boast.
Reitmans (Canada) Limited (TSX:RET.A) is a great example. Many people refuse to buy clothes online without trying them on first. Thousands of shoppers use the company’s physical locations to try things on, and then later go buy the item online. The strategy seems to be working; same-store sales were up 7.1% and e-commerce sales rocketed up 40.1% in its last quarter.
Reitmans is also well prepared to weather the storm with zero debt, and cash on its balance sheet equivalent to 40% of its market cap. It pays investors a generous 3.3% dividend to wait as well — a payout that should easily be covered by cash flow.
Another way to invest in retail
There are certain parts of the retail segment that are more likely to be squashed by online shopping than others.
Convenience stores are perhaps the safest part of the sector. These stores realized a long time ago that price doesn’t really matter when you’re just looking for a bag of chips or a coffee for the road. This gives them plenty of pricing power, even in an environment where Amazon dominates.
Alimentation Couche Tard Inc. (TSX:ATD.B) is the obvious play for any investor looking for exposure to the convenience store sector. Not only is the company a tremendous operator, but it’s also working hard to consolidate the sector. It’s working; Couche Tard has acquired more than 5,000 different locations in the last five years alone. It currently boasts more than 12,000 stores worldwide.
There are still plenty of acquisition opportunities too. There are thousands of stores in North America still owned and operated by oil companies. With some of these companies struggling because of low crude oil prices, look for convenience store assets to be put on the auction block.
The bottom line
Just because Buffett sold out of Wal-Mart doesn’t mean retail is dead. Reitmans is doing a great job growing its overall sales, buoyed by e-commerce. And it’s unlikely Amazon will even pose a serious threat to Alimentation Couche Tard.
The solution is simple. Instead of blindly punting retail stocks from your portfolio, take a minute to see how they’ll fare in an Amazon world. It might not be as bad as you first thought.
