Checking the Retail Channel

We've all heard Wall Street analysts talk about their "channel checks" at various stores when bolstering their investment outlook on retail stocks. One thing they are referring to is visiting a retailer's sales floor, and the observations they take away.

How useful are these observations? The short answer is probably not very.

Anecdotal shopping observations are a poor substitute for analysis of a company's financial statements and of sharp judgments about a management team's credibility. After all, retail companies often run a multitude of store concepts, spreading risk across different trends and demographics. Furthermore, other factors like valuation, mergers and acquisitions, capital structure and real estate can affect a company's stock price, and investors shouldn't be fiddling around with their portfolio without full knowledge of the big picture. ...