Betting against retailers
Davidowitz has consulted for the retail industry — advising on mergers, among other things — but he also often bets against it.
He says he and his team of four professionals spend most of their time buying and selling retail stocks and bonds with money that includes $500 million from a group of Japanese investors and about $50 million of Davidowitz's own money. Nearly all of the money he made in 2008, however, was shorting retail stocks, Davidowitz says.
Short selling — a bet that a stock price will fall — is legal but has come under fire as a possible source of market abuses. Investors profit through short selling by borrowing a stock from another investor, selling the shares and then buying them back later. The short seller, if successful, buys the stock back at a lower price and returns it, pocketing the difference in price. The Securities and Exchange Commission said last week that it planned to crack down on the practice.
Davidowitz says he never shorts the stocks he disses publicly and has refused to disclose all of the names on his list of troubled retailers in TV and print interviews. Davidowitz says CNBC and Bloomberg TV always ask him before appearances if he "has a position" on any of the stocks he plans to discuss. He says he always says no. CNBC and Bloomberg confirmed that describes their policies.
"Anybody who is commenting on the performance of a company and shorting the stocks has a clear conflict of interest," says NRF's Mullin. "This person really shouldn't be considered a credible source. There are a lot of analysts who bring a lot of knowledge and a deep understanding of the industry … and then there are others who are really in it for themselves."
Investors aren't required to disclose which stocks they short. But public records show retailers are big targets of short sellers.
For his part, Beemer, who has run America's Research Group for the past 30 years, says about 25% to 30% of retailers are likely to be forced into bankruptcy reorganization and have to "shed 30 to 40% of their stores."
Unlike Davidowitz, who focuses more on financial trends, Beemer relies more on his company's regular telephone surveys of consumers to detect shopping trends that are running in favor of or against a certain retailer.
Beemer proudly notes he was among the first to foresee four or five years ago the failure of Linens 'n Things, which liquidated last year, and of Mervyn's, which liquidated last fall in a scenario he had been publicly banking on for about five years. Of one of the first big furniture store liquidations in late 2007, he says: "I predicted Levitz long before they did."
"I'm a consumer guy," says Beemer, who says his clients tend to be smaller regional retailers who are willing to act on his recommendations. "My clients know and respect me for the fact that I'm very frank and blunt."
THE MAN BEHIND MANY RETAIL PROGNOSTICATIONS
"What retailer sells his best stores but Eddie Lampert?" shouts investment banker and retail consultant Howard Davidowitz, referring to the Sears chairman in an interview. "That will put you out of business!"
It will also get you on Davidowitz's list of troubled retailers, a list that helps get him frequent television appearances and mentions in several hundred newspaper and magazine articles a year.