The Best Hybrid Retail Stock

hybrid-retail-stockThere’s a new shift in retail coming, and it might not be what you expect.
Online retailers have been eating physical retailers’ proverbial lunch for several years now, but we might be near a turning point. Online will remain a core part of shopping, but are brick-and-mortar stores poised to make a comeback?
The success of Restoration Hardware (NYSE: RH) would certainly suggest so. Shares are up 214% since its late 2012 IPO, outpacing the return of the S&P 500 index by more than 4.5 times over that period.
Restoration Hardware has enjoyed this success by focusing solely on creating a great physical store experience. The retailer maintains that physical locations are very important because people still want to see and interact with things in a 3D manner.
Yet many retailers are in a rush to shift toward e-commerce, leading retailers to close stores. However, Restoration Hardware makes an important point: You can’t shrink to greatness.
The best retailers will “have the very best physical experiences in the world tied with the very best virtual and digital experiences in the world,” according to a recent statement from Restoration Hardware.
But many companies tend to do one or the other really well, but not both.
Bed Bath & Beyond (NASDAQ: BBBY) is one of the leaders when it comes to tailoring merchandise to local markets, but its online presence is nil. Its stock is down 10% year-to-date.
Williams-Sonoma (NYSE: WSM) has a great online presence – generating more than half its sales from e-commerce – but it’s rumored to be on the prowl for an acquisition that will give it more of a physical footprint.
Pier 1 Imports (NYSE: PIR) does the majority of its business in physical stores and is struggling to gain an online presence. Shares are down close to 20% year-to-date.

The Best Hybrid Retail Stock

There is a clear leader, however, in combining online and physical retailing.
Macy’s (NYSE: M) is one of the best physical retailers in the e-commerce market. It created the “omnichannel” many years ago, which helps blend the online and physical store worlds.
There’s still something to be said for Macy’s products, such as clothes, furniture and appliances, which lend themselves to be seen and touched. Its model is based on getting shoppers in the stores and then finishing the sale either in-store or via e-commerce with a flawless transaction. Alternatively, Macy’s is also pushing a buy online and pick up in store strategy, which helps keep shipping costs and inventory markdown low.
It also has a “My Macy’s” initiative which helps localize its merchandise. Meanwhile, it’s working on developing new ideas, such as e-gifting, which allows shoppers to send a product as a gift via email – and then allows the recipient to customize its size and color before it ships. Macy’s is also working with zTailors to help bring tailors into customers’ homes or offices, akin to tailors on demand.
Macy’s is rolling out new technology in its stores to further drive sales. Initiatives include point-of-sale devices, tablets and kiosks to make the shopping process easier and more interactive.
Nordstrom (NYSE: JWN) is also doing some interesting things with meshing online and physical retail, including putting tablets in its stores. However, Nordstrom is a high-end retailer and trades at a price-earnings ratio of over 20, while Macy’s P/E is around 16.
Macy’s also wins out over Nordstrom in terms of better profit, operating and gross margins. And last but not least, Macy’s offers one of the highest dividends in the retail pace, coming in at 2.1%.

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