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Can a Fidget Spinner Bubble Destroy This Vulnerable Sector?

Another stupid fad is about to bite the dust.

The fidget spinner craze is beginning to cool off, according to Wall Street analysts. At long last, the scourge of the bright plastic spinners is nearing its inevitable end!

In case you’re completely out of the loop, a fidget spinner is a cheap hunk of plastic and ball bearings that kids can literally use to fidget the day away.

Apparently, these annoying little gizmos have been around for at least two decades. They were originally given to kids dealing with stress or ADHD. But the fad has exploded in popularity this year.

You can’t go anywhere without seeing a kid fiddling with a spinning toy these days. Walk into any drug store and you’ll find boxes of cheap spinners in a variety of styles and colors. Even teachers hate them (schools are banning them left and right, claiming they’re distracting students).

If you’re one of the millions of parents annoyed by the fad, you’re in luck. Apparently, kids are getting bored with these analog gadgets. Just a couple of weeks ago, KeyBanc Capital Markets noted that fidget spinner sales are beginning to slow.

Why would KeyBanc bother to mention fidget spinners in an analyst report?

Because the firm believes dwindling sales could hurt certain discount retailers, mainly trendy “value retailer” Five Below Inc. (NASDAQ:FIVE). KeyBanc even downgraded its rating on FIVE due to the sales dip…

“While fidget spinners are still contributing to sales at FIVE, our channel checks indicate sales have been decelerating in recent weeks, potentially at a pace not expected by the market,” a KeyBanc analyst notes in the report.

To be fair, Five Below stock has enjoyed an impressive run over the past few months. Even after retreating from its June highs, the stock is still up more than 22% year-to-date. That’s nothing to scoff at – especially when you consider that Amazon stock is beating FIVE’s performance by just about 7% this year.

That’s right – an old-fashioned retailer is almost keeping pace with Amazon right now. And I’m guessing this isn’t just due to fidget spinner sales. Sure, fidget spinners are a great impulse buy. They’re inexpensive and kids beg their parents to buy them when they’re stuck in a checkout line.

But we can’t forget about Amazon, destroyer of all things retail. After all, there are only a few survivors buried in the retail rubble. Big department stores are dying. Even discounters like Kohls are feeling the heat.

But if you’re fully dedicated to selling cheap junk, you just might have what it takes to survive Amazon’s e-commerce onslaught.

Let me explain…

I believe stores like Five Below have a shot at avoiding Amazon-induced obsolescence. Extreme discounters and dollar stores are anything but fancy. That’s where they have an edge over other traditional retailers.

Have you been inside a cramped Dollar General Corp. (NYSE:DG) lately? New Dollar General locations are popping up all over rural America. The company is planning to open 1,000 stores before the year is finished. That’s an aggressive expansion plan—especially when you have Amazon breathing down your neck.

But management’s approach to the “cheap crap” retail segment is playing out perfectly. Instead of bogging down the balance sheet with massive stores and tons of staff, Dollar General has a minimalist approach. Good deals in small stores make it easy for shoppers to get in and out. That’s why the company is bucking the trend and expanding in this dismal retail environment.

Dollar General stocks isn’t attracting any momentum traders this year. It’s remained stuck in a choppy range between $70-$80 for most of 2017. But we think DG and Five Below stand a fighting chance as the Amazon Armageddon continues to rip through the industry.


Greg Guenthner
for The Daily Reckoning

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Greg Guenthner

Greg Guenthner, CMT, is the editor of Opening Bell Fortunes and Seven Figure Signals. He has been with Agora Financial/Seven Figure Publishing since 2005. In 2019, the average position in Greg’s Sunrise Fortunes portfolio outperformed the S&P 500 by 1.65x.

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