The good news for retailers is online sales are seeing double-digit growth this holiday season. The bad news is all the packing, shipping and dealing with returns that come with digital selling is squeezing margins, former Toys R Us CEO Gerald Storch told CNBC on Monday.
Contrary to popular myth, the pure online operations of bricks-and-mortar retailers have a lower return on sales and assets than store-based sales do, the CEO of Storch Advisors said in a “Squawk Box” interview.
“It’s very expensive operating online, but that’s what the consumer wants and that’s where it’s going to go,” he said. “This is one of the factors that’s squeezing operating margins for retailers. So you hear decent comp store sales and then their margins are squeezed, and you go, ‘What’s going on there?’ Well, part of it is this shift.”
The key for investors is to look for retailers who excel in integrating online and physical store retail, he said.
“One of the great things that happens is a lot of these people return things to the store, and when they come to the store, if you can get them to buy something else, you’ve done a fantastic job,” he said.
Storch’s list of standouts in this area include Macy’s, Nordstorm, and Wal-Mart. He also said Best Buy is doing a great job, despite being in a tough category.
Wal-Mart and Best Buy—along with Target—stand to benefit as consumers spend more on electronics and hardware and less on apparel this holiday season, said Joe Feldman, senior managing director at Telsey Advisory Group.
“Teen retailers look like they’re toast” as young shoppers spend their money on cellphone services and hang out online rather than at the mall, Storch said.
Telsey Advisory Group sees the trend of teens shopping at fast fashion retailers such as H&M and Zara as long term.
Surveys “continue to indicate that they’re shopping at Forever 21, but they’re not shopping at Abercrombie, and I think that’s where there’s been a shift where youth have been shopping,” Feldman told “Squawk Box.”
As for Gamestop, Storch said the video game retailer is in a good part of the cycle right now, but he noted that game sales are moving online.