Here’s an Under-the-Radar Strategy for Picking Winning Retail Real Estate Investment Trusts

Investing in retail stocks comes with its own set of challenges. Ecommerce is still disrupting brick-and-mortar retail, forcing businesses to find ways to adapt or risk being left behind.

In this video by Motley Fool Backstage Pass, taken on January 6th, Fool contributors Jon Quast, Charlene Rhinehart and Travis Hoium talk about it. Charlene has a great approach to selecting successful retail Real Estate Investment Trusts (REITs). Travis talks about how retail businesses can increase their relevance by offering easy shopping from home.

Jon Quast: The question we wanted to bring to the table here is: how do you approach retail as an investor? Because there are clearly two very different scenarios playing out here once you’ve done this Macy’s, bed bath beyond fight a bit, and then Dick’s sporting goods (NYSE:DKS) not see that. How do you deal with that as an investor?

I think Charlene you’re the first one up here.

Charlene Rheinhart: When it comes to retail, you really need to do your homework. I haven’t looked into retail much lately because of all the shifts as more businesses move from the brick-and-mortar base model to e-commerce.

When I look at retail, I look at the companies at the top of the chart. Can they continue to gain market share? Do they have an economic moat? Are they able to use technology in their business? There are some companies that only top the charts, whether by price or by market share. I continue to look at these companies and see if other companies are able to keep up.

Then I also look at retail REITs. That’s one thing I’ve been paying attention to during the pandemic, because while many REITs and retail stores have shut down, there have been retail REITs out there, particularly malls with grocery stores anchored, that have had stores. These stores were still full. The shops were still making money, but they were probably one of the few places people were still going during the pandemic.

I’m looking for places or opportunities that no matter what happens in the economy, what people will need? What are these must haves? Eating was a must. When I look at retail, I look at what’s going to stay, whether it’s brick-and-mortar or e-commerce. Where are the opportunities?

tassel: That’s such a really interesting approach. I had not thought of that. Look for the real estate mutual funds with a grocery store anchoring them because you know the folks there will continue. That’s a really good point, Charlene.

Travis, what about you? How do you approach retail?

Travis Hoium: One of the things I’m thinking about, and I’m kind of doing that with you guys. Let’s see if you identify with it. It seems like something’s going on. The last decade has really been about e-commerce and the growth of Amazon and affiliated companies. But I think what we’ve learned over the past few years is that specifically with Amazon, it wasn’t so much about price as it was about convenience. It’s been like, instead of going to the mall or the store, I just want to sit at home, scroll through my phone, and buy the things I need to buy. They didn’t Walmart Model that would beat them all on price and no one else could match.

I think what we’ve seen in the last two years has really evolved, that was obvious with the results that we’ve been talking about, it seems like there’s this food plus. aim‘S (NYSE:TGT) done very well in recent years. I think that’s because you can now drive to Target without leaving your car, but they will put groceries in the back of your car along with some towels and whatever pillowcase you need.

Why is Bed Bath & Beyond having problems? Because I don’t really want to go to Bed Bath & Beyond to get a towel, I just want it to be something I get when I’m doing something else I would be doing, like getting groceries that I have to get done regularly.

Then the other retailers who appear to be doing well are these specialty retailers. Dick’s would fall under that. If you buy sporting goods, I’m even happy to do it. Looking for something specific but want to walk through the running shoe department or outdoor apparel, whatever your fancy, Dick’s has something for everyone and it’s an experience. I don’t think of a place like Bed Bath & Beyond as an experience.

That’s what we’re seeing is that the internet has brought convenience to you over the past decade. Now we see that specialization and this food plus concept are really successful. Companies like Bed Bath & Beyond are right in the thick of it. They don’t fit into any of these categories.

tassel: I think that’s a good point, Travis. Bed Bath & Beyond I think they have for years by not saying it but saying they have a problem getting customers into the store. Because how do they do it? With these frequent coupons they send to their mailing list or just unsolicited. Some show up at my house. But this is how we get you into the store, because what else is the drive that brings you here? I think that’s a really good point.

I wanted to thank Richard O. over at Sli.do. He gave us a retail basket; Aim, home depot, Amazon and free market. They’re definitely looking at some top notch retailers that are definitely poised to keep going for quite a while.

Hoium: Yes, I like that very much. I actually like Charlene’s idea of ​​retail REITs, too. I remember the following Simon real estate group. They’re more malls, but a big REIT. Just got knocked down early in the pandemic. But if you bought that stock, you would have hit nearly $40 a share. They closed today at $163 a share. [laughs] They don’t think a mall REIT is something that can quadruple in just over a year, but it is, and that’s because the underlying companies, while some have gone out of business, have found businesses who replace them. That’s why these REITs have done really well. I like it as a game because you don’t have to bet on a specific model or concept.

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