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JWN, jewel of the luxury retail sector Titanic

October 13, 2011

If we stop for a second and think about what stocks are likely to be hard hit during economic downturn, one might think first of luxury retail stocks. Take Nordstroms (JWN), for example. It is trading at annual highs and near all-time highs. This is happening while unemployment still rages and the US economy is heading for global economic icebergs and stagnation. Think too, that high-end retail stocks like this were one of the first barometers of financial woe in 2007. Now let’s consider what JWN actually does. They sell nice clothes and provide credit services for customers. The credit service’s success is dependent on sales. And will people continue buying nice clothes, perhaps the most substitutable good on the planet, during times of economic hardship? I don’t think so. If I lost my job, the first thing I’d do is stop buying Ferragamo shoes and start buying Chuck Taylors. JWN is currently trading at a healthy 16+ P/E, however these healthy metrics are about to be infected with the Eurozone and US debt virus. I will be shorting JWN into the $30’s.

Why might I be wrong?

Nordstrom’s also operates “Nordstrom Rack” which is discounted, older merchandise from its regular stores. In addition, they have positioned themselves much better to weather economic crises by drastically expanding their online retail presence.

Why the longs are wrong:

I don’t have the exact numbers, but profit margins are 2-3x higher at regular Nordstrom’s than Nordstrom rack. The beefed up online retail presence doesn’t mean mean people won’t just turn to cheaper clothes from Amazon or H&M.


As an extra, here are some confidence-cutting charts of Greece’s revenues and expenses.


Austerity what?

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