The Black Friday Test Is Almost Complete

"You gotta get my stuff out of there."

The call came from a mid-level Microsoft (MSFT) executive. And that job ended up being one of the strangest I've ever done.

It was 2009. I was working for a Microsoft contractor in Washington state. And our local Circuit City was closing its doors for good...

The Circuit City in question had a special Microsoft display in it. So a few of us packed up our tools and drove over.

Once there, we explained what we were doing to the manager. There wasn't anything they could say to stop us. We proceeded to rip an extremely expensive TV off the wall. I distinctly remember one of the employees walking by and saying something like, "So this is how it starts..."

The TV left an ugly hole. And my understanding is that it stayed like that till the store closed. But that didn't matter. Our guy at Microsoft needed to save his stuff before the liquidators got there.

Now, Circuit City made a series of big mistakes. But its biggest failure was ignoring the direction the wind was blowing.

The company's executives cut appliances out of the business model in the early 2000s. It missed the entirety of the housing boom as a result. Today, Lowe's (LOW) and Home Depot (HD) are still alive – thriving, in fact. And Best Buy (BBY), which kept its appliances-plus-electronics operation, made the folks over at Circuit City look like fools.

Today's major retailers are facing a similar hurdle. I like to call it the "Black Friday Test." And by the end of the week, we'll get to know who passed and who failed.

Let me explain...

The Black Friday Test of 2020 is simple. It measures which retailers have successfully navigated the shift to online shopping.

This trend has been happening for years. Amazon (AMZN) continues to devour more and more brick-and-mortar sales. And that means that retailers that don't figure out how to sell online are doomed.

This year, COVID-19 has made this more important than ever. And it means that the Black Friday Test is an incredibly useful way to measure a retailer's prospects.

The numbers are still coming in. But according to TheStreet, it looks like we're going to see more than two years' worth of online sales growth packed into a single holiday season. That's good for retail as a whole. But there will be winners and losers.

So, here's how to see who passed the test:

  1. Look for companies that lost ground in brick-and-mortar sales.
  1. Check to see if they made up for it with online sales.

Any brick-and-mortar sales lost need to be made up online. If not, that company fails the test.

As this week continues, if you find that you're holding stocks of retailers that fail this simple checklist... please, think twice.

Over the years, we've heard the excuses from brick-and-mortar retailers...

"Our customers prefer the in-person experience... We're focusing on personal relationships... Technology will never replace one-on-one interaction."

But the facts are simple. Retailers that have successfully navigated the online transition are thriving. And the ones that haven't are starting to look like dinosaurs.

You need to be invested in companies that know which way the wind is blowing. And these days, that means having a robust online presence.

Companies that fail this test are at risk of going down like Circuit City. And believe me, plenty of them will go down.

Don't get caught holding the bag. Instead, make sure you're only invested in retailers that pass the Black Friday Test. If they don't, their future is grim.

Good investing,

Vic Lederman

Further Reading

"Retail isn't dead yet," Chris Igou writes. While the coronavirus has dealt a heavy blow to the sector this year, some companies are navigating these troubled times the right way. And knowing which companies are winners and which are losers can lead to impressive gains... Read more here: This Retailer's Hot Streak Could Lead to a 34% Rally.

It's no secret that physical retailers have been suffering for a long time, even before the pandemic shut their doors. It might sound counterintuitive, but you can actually make safe returns by investing in the debt of some dying companies... Get the full story here: What You Need to Know to Make a Fortune From Dying Companies.

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