- Retail is a dangerous business as there is always a new player on the block.
- Traditional retailers see declining sales and margins while E-commerce retailers see growing sales and declining margins. This is not a good combo for investors.
- As always, there will be many opportunities to make money, but be sure to know what you’re doing and forget about moats and long term buy and hold investments.
In Buffett’s biography, The Snowball, retail is described as a marathon business where you have a new, fresh runner joining the race at every mile.
One of Buffett’s first retail investments was a holding company, Diversified Retailing Company Inc. (DRC), formed by Buffett, Munger, and Gottesman in 1966 with the goal of acquiring retail businesses. Their first acquisition was Hochschild-Kohn, which on paper looked like a great buy due to its substantial discount from book value, good management, unrecorded real estate values, and a significant LIFO cushion. Despite the good fundamentals, they sold three years later at no profit. Selling without losing money might not seem all that bad to you, but it’s a terrible thing for Buffett because it means he has missed opportunities to better allocate capital. More →