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Lessons From The Black Friday Trenches

Saturday - 11/24/2012, 10:06am  ET

Whose bright idea was it to have people wait in line in a stuffy department store for two hours after the biggest meal of the year? I should have waited outside Wal-Mart instead of inside Kohl's  for my one piddling purchase. The two women behind me in line had already visited K-Mart, Wal-Mart Stores ,Target, and now had been in line with me for the duration.

These two were pros, having finished all their holiday shopping in one fell swoop until they hit Kohl's. They reported they got in and out of Wal-Mart in fifteen minutes even though hours earlier when I drove past lines were around the block. Best Buy   also had a line with camping tents just before 9 p.m. and several county police cars in front, too, to keep the peace.

Target however had almost no line and the pros reported once again they were in and out within minutes. K-Mart was crowded but checkout was swift, too. What was the problem with Kohl's? First, one scanner was down and every five minutes another associate asked those of us in line would we like 30% off our purchase today to sign up for a Kohl's credit card. After the third time in half an hour the women behind me darkly muttered about these associates hitting them up instead of ringing them up.

At Macy's the next day, the afternoon of Black Friday was busy, busy, busy especially in women's shoes and boots but I was rung up within minutes with all the appropriate discounts. My daughter and I found a pair of Guess boots for half off with additional Black Friday discounts and were very happy after our Kohl's debacle.

Were I a stockholder in Kohl's I might have put in a sell order for the next day as I was so impressed by how much better these other retailers were handling Black Friday. Macy's had the Google wallet option and more associates helping with getting merchandise out and people rung up. Macy's also had higher end quality merchandise. Hint: if you have friends or relatives that shop at Kohl's expect a crockpot as a gift this year.

Cut Your Losses

My daughter explained a simple principle of behavioral finance to me, "sunk cost theory," the time or money already spent on an endeavor or purchase should be ignored as the future odds/prospects of going forward are the only ones that are relevant. She added after we had already been in line for 45 minutes at Kohl's that I needed to decide how long I'd be willing to wait if had just joined the line. She taught me very few people can implement sunk cost theory when it comes to investing their own time or money.

Cut your losses, in other words, before they mount up. As applied to retailers, I would say sell Kohl's and Best Buy on any uptick and instead buy some of what's working including Macy's ,Wal-Mart and Amazon.com .

Kohl's may have an 11.92 P/E and a 2.50% yield which goes ex-dividend on December 3 but it is also down - 0.06% over 52 weeks while the S&P is up 18.16%. Kohl's also has 4.58 billion in debt to 550 million in cash. Its profit margin is only 5.62%.

Best Buy is just a Hail Mary name in hopes of a buyout by its founder Richard Schulze. The stock is trading at 5 year lows, down 77% since 2007 with a negative EPS of -$3.36. Best Buy just reported Q3 earnings of $0.03 per share down from $0.47 in the year ago period. They also reported same store sales down by 4.3%. Best Buy will continue to be pressured by competition from Wal-Mart (located next to the Best Buy where I live) and Amazon. Even with lines on Black Friday and a new CEO, Hubert Joly, it isn't enough to turn this name around.

Boost Your Profits 

Wal-Mart has finally found a Black Friday system that averts violence and still satisfies shoppers although it is a burden on their salespeople. Reuters reports that a new kind of shopper was shopping this year, one that had normally avoided Black Friday bricks and mortar. The shopping in shifts strategy seems to be working quite well.

If you are a socially responsible investor you may have a problem with Wal-Mart but it is the largest retailer in the world. It has pulled back 10% from its 52 week high at $77.60. The P/E is 14.44 and it has a 2.30% yield. 

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