Retail stock

Quick definition

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Updated: Jan 9, 2024

A retail stock is a stock of a company that sells retail merchandise to consumers. 

Key details

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  • A retail stock is a stock of a company that sells retail goods – things that people want but do not always need – to consumers online and/or in a store
  • Retail stocks are part of a highly volatile industry that is dependent on changing consumer demographics and taste
  • Retail investors frequently use sector rotation as an investment strategy to make the most of their retail stocks

What is a retail stock?

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A retail stock is a stock of a company that sells retail goods to consumers online and/or in a store. Retail goods are things that people want but do not always need. The following businesses are typically associated with the retail sector:

  • Clothes 
  • Department stores
  • E-commerce internet platforms
  • Home goods and furnishings
  • Auto parts
  • Computers and other technological devices
  • Distributors

Investors can count on retail as a resilient sector that is unfazed by business cycles – people shop regardless of the state of the economy. However retail stocks tend to be more volatile because they are entirely reliant on consumer demographics and tastes.

What are the defining characteristics of retail stocks?

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It’s pretty simple: Retail stocks tend to thrive during times of economic expansion and fall during recessions. Pay close attention to macroeconomic trends such as consumer spending and jobs reports if you plan to be an active investor in retail stocks. 

2) They move fast

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Retail trends can change at lightning speed. Today’s hot tech gadget, Christmas toy, or outfit could lose its cool factor by tomorrow and have an impact both on the company that makes them and the shops that profit from selling them.

The best retail companies are highly responsive to changing trends, putting out products that appeal to consumers and not resting on their laurels.

3) Some retailers carry thin profit margins

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Retail companies such as grocery store chains operate with very thin profit margins. That means they have to do a lot of business to generate the kind of volume they need in order to keep growing.

On the plus side, grocery store chains are more or less recession-proof, because people always need to eat, but if incomes fall then people’s spending habits change and higher-end food stores can find themselves losing customers.

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The rise of Amazon has knocked bookstore chains, mom-and-pop stores, and even bigger chains out of business. To survive and prosper, retail companies need to build their own robust online presence and have a brand that goes beyond the high street.

What are some examples of retail stocks?

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The following are some examples of prominent retail stocks you might consider adding to your portfolio, along with a quick summary of each. 

1) TJX Companies (TJX)

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The department store chain operator saw its stock tumble in March 2020 amid economic pressure from the coronavirus-induced global lockdowns. The stock then jumped 45% from that point to its close on June 10. This shows that, while volatility can affect retail stocks, resilient brands can bounce back fast.

2) Home Depot (HD)

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One of the top-performing retail stocks of any kind in the world, Home Depot soared to an all-time high in late May 2020, and has kept climbing since then. The home improvement chain’s stock complements that incredible price performance with a 2.3% dividend yield.

3) Chipotle Mexican Grill (CMG)

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It’s odd to imagine restaurant stocks doing well during a global pandemic, but Mexican restaurant chain Chipotle has shrugged off the fears of spring 2020, nearly doubling in price from its March lows by the time June came around.

4) Domino’s Pizza (DPZ)

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A restaurant chain that specialises in delivery service can reap the benefits of global stay-at-home conditions. So it has been for Domino’s, the billion-dollar pizza chain that’s trading at an all-time high, with its stock up more than twofold since October 2017.

Investment strategy for retail stocks

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Sector rotation is an investment strategy used by investors to make the most of retail stocks in their portfolios. The strategy is to move your money in stocks from one industry to another as you anticipate which industry will be more stable than another in the next economic cycle – i.e. put money into retail stocks when the market is bullish and move that money into more stable industries when the market is bearish. 

This is relatively easy to do as the economy moves in a reasonably predictable pattern of boom to bust and back again. Certain sectors thrive or suffer depending on the stage of the economy. Investors should anticipate the boom stage in order to invest in retail stocks using sector rotation – retail thrives during the boom when expansionary policies boost consumer demand.

Where can I learn more?

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For more information about retail stocks, and other key financial concepts, check out our full course page. Our various courses cover everything you need to know about stocks and investing

Sources & references
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Prash Raval
Financial Writer
Prash is a financial writer for Invezz covering FX, the stock market and investing. For over a decade he has traded spot FX full time while... read more.