Don't fear discounting at retailers

Traders who don't understand the necessity of bargains in retail have missed out on much of the sector's surge. But one discount retail stock is still 'a screaming buy.'

By Jim Cramer Dec 21, 2010 9:38AM

more stock picks and investing advice from jim cramer at thestreetAs we go into the final days before Christmas, let me tell you the most overrated word in the stock investing lexicon: discounting. This refers to the idea that the retailers are going to miss the numbers because of all the discounting going on.


One of the most amazing facts out there is that the retailers know they have to offer bargains. They know the consumer is smart. They know people compare prices on the Web. They know that when consumers go to stores, they have prices in mind, regardless of the possible service they will get -- and they care more about price than ever.


If you talk to the people running these stores, and I talk to the CEOs regularly, they totally accept that they have to offer better values to keep customers happy -- and they do. This turns out to be of little sacrifice to gross margins, unless prices are easily figured out and the Web is head to head with bricks and mortar -- the problem that has bedeviled Best Buy (BBY) more than any other retailer.


Failing to understand that merchants have figured this all out -- and have still devised ways to make more money than you think, either through sheer ingenuity or more clever sourcing or better bargaining with suppliers -- is why so many people have missed the big retail move. Traders want to hear that retailers are getting "full price" or else, as if there is still such a thing.

Not all retail stocks have moved yet. I keep hearing of discounting at Kohl's (KSS). Well, let me tell you. I know the guys at Kohl's. They make huge amounts of money through discounting, as they get the best deals from the suppliers. It is a screaming buy right here, as we have been telling Action Alerts Plus subscribers.


I think that Bed Bath & Beyond (BBBY) will have a good quarter and that Macy's (M) will report much better than expected.


Post resumes after video:

Do not fear the discounts and discounting. They are a necessary evil, and they have not hurt the earnings at all, with the exception of Best Buy -- and I think that will prove to be a very isolated instance as we get through the holiday season.

I would use any weakness today caused by whatever is happening in Poland or Portugal or Guinea Bissau, for that matter, to buy Kohl's or any of the broad-liners that have acted in a subpar manner ever since the blowup in Best Buy shares. It's just another opportunity to pounce off more misinformation for people who see red-tag sales and actually think the retailers aren't making a lot of money off them!


At the time of publication, Cramer was long Kohl's.


Jim Cramer is co-founder and chairman of TheStreet. He contributes daily market commentary for TheStreet's sites and serves as an adviser to the company's CEO.


Follow Cramer's trades for his Charitable Trust.


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