Just three Kmart stores survive — not a surprise in a world dominated by Walmart and Amazon.com. But some retailers are still aggressively opening stores, and ETFs offer a way to play this inside look at the economy.
Half of the S&P 1500 retailers that opened the most stores last fiscal year, including Dollar General, Dollar Tree plus Five Below, are all discounters, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith. That's a strong indication these companies at least think consumers will get more cost conscious as inflation reaches 1970s levels and interest rates rise.
And it pays to notice. Shares of the retailers that opened more stores than they closed last fiscal year are down just 8.2% this year. That's half the 16.4% year-to-date loss of the SPDR S&P Retail ETF.
"The cool-down period for consumer prices may take a long time. Supply chains are still clogged, consumers have pent up demand for services, and the pool of available workers is small," said Jeffrey Roach, chief economist at LPL Financial.
Retailers Aggressively Opening Stores
It looks, too, like S&P 500 investors are actually making money on the retailers opening stores.
Take Dollar General. The discount retailer with more than 18,000 stores in 47 states is the leader when it comes to opening new locations. It opened a whopping 1,000 stores in the last fiscal year and only closed 101 for a net gain of roughly 900, says S&P Global Market Intelligence. That's more net new stores than any other retailer in the S&P 1500 that reported the data.
And Dollar General, too, is a leader for investors, too. Shares are up more than 3.5% this year. That's a strong showing especially when you consider the SPDR S&P 500 ETF Trust is down nearly 8%. But even stronger is Dollar Tree, another discounter, that on balance opened roughly 400 stores in fiscal 2021. It now runs more than 8,000 stores in the U.S. and Canada. And its shares are up big this year: nearly 20%.
Another sign of the times is auto parts retailers. AutoZone and O'Reilly Automotive are also aggressively adding stores. Consumers, facing skyrocketing car prices, are driving their vehicles longer. They need to keep them running. AutoZone added more than 200 new stores while O'Reilly added more than 160 during the last fiscal year.
Finding Retail ETFs
The largest ETF with the biggest stake in Dollar General is the VanEck Vectors Retail ETF. It puts 3.1% of its portfolio in the stock. But it's important to note the ETF, with $216 million in assets, weights its 26 holdings by market value. That means Amazon is the No. 1 holding of the portfolio at 21%. And that's followed by Home Depot at 9% of the ETF. And Dollar Tree is a 2.3% weight, says ETF.com.
Both of those stocks' positions are outsize versus the larger $400 million SPDR S&P Retail ETF. That retail ETF holds many more positions: 109. But it equal weights them all. That means the ETF's position in volatile meme stock GameStop at roughly 1.5% is to be rebalanced to match the roughly 1% position in other holdings including Dollar General and Dollar Tree.
And reflecting the stable cash generation power of AutoZone and O'Reilly, both are top holdings in the tiny $9 million in assets Pacer US Cash Cows Growth ETF. The ETF owns more than 4% of both stocks, putting it among the top holders of their shares. But the auto-parts sellers are also roughly 3% holdings in the VanEck Vectors Retail ETF.
So while Kmart is practically extinct, there are still retailers tapping growth.
S&P 1500 Retailers Opening The Most Stores
During fiscal 2021, net of stores closed
| Company | Symbol | Net stores opened | Stock year-to-date % ch. |
|---|---|---|---|
| Dollar General | 899 | 3.4% | |
| Dollar Tree | 397 | 19.0 | |
| AutoZone | 218 | 3.4 | |
| O'Reilly Automotive | 168 | 1.6 | |
| Five Below | 120 | -14.6 | |
| Tractor Supply | 76 | -0.8 | |
| Ross Stores | 54 | -10.6 | |
| Cato | 49 | -15.9 | |
| Sleep Number | 46 | -34.1 | |
| Ollie's Bargain Outlet | 43 | 0.0 |
