5 Best Retail Picks for 2021

Last year was tough for most businesses, but downright brutal for many retailers. The COVID-19 closures have helped set the stage for what Coresight Research estimates could reach 25,000 U.S. store closures in 2020, nearly tripling the 2019 tally. The fact that consumers have trained to do more more online shopping suggests that 2021 won’t be a picnic for retailers either.

However, there are a handful of retailer names that could emerge from the pandemic in even stronger shape than when they entered it, having better meshed their online and in-store operations. Here’s a look at the top retail stock picks of the year ahead and a look at how they defy the odds.

1. Lowe’s

For years home improvement retailer Lowe’s (DOWN 1.54%) struggled to keep pace with its much larger rival Home deposit. There’s a chance, however, that the smaller name has already become the better investment.

Lowe’s so-called “Total Home” strategy (unveiled in early December) is an encouraging development that paves the way for this possibility. The initiative aims to “improve customer engagement and increase market share” along with other initiatives, according to the company, with a top-down overhaul of everything Lowe’s does, including its omnichannel efforts. It’s a cliché when it comes to business strategies, but that doesn’t mean it won’t be effective.

The thing is, we may already be seeing glimpses of Lowe’s new edge over its main competitor. For the quarter ending October, Lowe’s U.S. same-store sales growth of 30% led to a 40% year-over-year improvement in operating profit. Home Depot’s same-store sales rose just 25% for the same quarter, leading to a more modest 23% increase in operating profits.

A quarter of outperformance is not a trend, but it does suggest that Lowe’s is starting to understand a few things.

2. Kohl

Department stores were the proverbial posters of what is now being called the retail apocalypse. This is a somewhat misleading association, however. Department stores located in malls and the malls themselves are at the epicenter of the retail headwind. Off-mall malls are doing well because they respond to how and where consumers now live.

Walk in Kohls (KSS -19.64%). Of the company’s more than 1,100 stores, more than 95% of them are located outside shopping centers. These neighborhood-focused units draw their own crowds without relying on a mall’s foot traffic to supply shoppers.

The company has also become quite good at attracting traffic, but it is becoming increasingly savvy. Last year it started accepting in-store returns for goods purchased from the online retail giant Amazon.co.uk (AMZN 3.15%). This year, he began square footage experiments with Amazon’s grocery brand called Fresh. Even better, in early December, Kohl’s announced that it would be added Sephora-branded beauty salons to more than 800 stores by 2023.

It is difficult to determine exactly how much additional foot traffic these offers will bring. It’s also hard to say that these partnerships and others like them won’t increase the number of buyers for the foreseeable future.

3. Tractor Supply

tractor supply (TSCO 1.27%) stands at the convergence of two semi-related trends.

The first of these trends is the ever-increasing consumer interest in autonomy. Shortages of certain foods resulting from panic buying in early 2020 underscored and accelerated this trend, but did not trigger it. Allotment gardens and off-grid living have been increasingly popular lifestyles for years. This change is also not expected to stop anytime soon.

The other trend working in Tractor Supply’s favor is a migration from the more densely populated metropolitan areas of the United States to its more rural environments. Amid this search for a more independent way of life, for example, New York City lost an estimated 300,000 people last year. Not all move to resolutely rural areas. But many of them are moving to decidedly less urban areas like upstate New York, where they can enjoy a little more space for a little less money.

Selling goods ranging from seeds to farm clothing to solar panels, a company like Tractor Supply can easily help newcomers adjust to life on (and off) their land.

4. Large lots

When investors think of dollar stores, most think of General dollar Where dollar tree, which also owns the Family Dollar brand. Dollar General operates more than 17,000 locations in 46 states, while Dollar Tree’s footprint has more than 15,000 stores between its two locations. Large lots (BIG -2.62%) is a relatively small potato by comparison, with only 1,400 stores in the company’s network.

Don’t let its small size fool you, though. This is the biggest opportunity in the peloton. Same-store sales growth last quarter of nearly 18% easily outpaced the same growth metrics for Dollar Tree and Dollar General.

It wasn’t a fluke either. This is a reflection of Big Lots’ savvy approach to running its stores. You see, the discounter might be one of the smaller names in the business, but it doesn’t think so. He’s developed a profile of his most important client, and every decision he makes is ultimately about satisfying this busy 30-something woman named Jennifer, who’s got a cell phone in her hand that is connected to social media sites, is budget conscious, but still loves having a nice home. Big Lots was also the first (and is still the only) discounter to offer true curbside pickup of online orders and in June announced a partnership with PICKUP which offers same-day delivery of online orders placed with local stores.

5. Bed bath and beyond

Finally, add a home goods retailer Bed bath and beyond (BBBY -5.23%) to your list of retail stock picks for the coming year 2021.

It’s a name that most investors had given up on. He did little to prevent Amazon’s market penetration, and then after finally getting rid of CEO Steven Temares in May last year, he took too long to hire his replacement. Ancient Target Leader Mark Tritton only took the helm in October last year and he inherited a struggling business that was on the verge of a catastrophic pandemic. It would have been easy to write off Bed Bath & Beyond for good.

It would have been a mistake. Tritton appears to be turning the company around despite the difficult environment. For the first time since 2016, same-store sales improved in the quarter ending August, up 6% year-over-year. This growth was largely driven by a new and improved e-commerce platform which resulted in 89% revenue growth.

This is just a taste of the changes Tritton is putting in place. The retailer’s product assortment, in-store technology and omnichannel promotional approach are all – finally – revamped as the chain is streamline your business. The pivot may have already been made.