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Retail Adventures’ dodgy adventure

Discount chain Retail Adventures has appointed administrators after reportedly losing $114 million and owing creditors $270 million. Retail Adventures is the corporate parent of well known retail outlets Sams Warehouse, Go-Lo, Crazy Clarks, and Chickenfeed, and is owned by Kathmandu Holdings (ASX: KMD) founder Ms Jan Cameron.

Some commentators will use this corporate failure to once again pronounce the ‘death of retail’. Foolish members will of course be circumspect of such bold claims. While there are definitely structural challenges, thanks to the growth in online commerce, it is highly likely that there will still be successful and profitable ‘bricks and mortar’ stores for many years to come. The key of course is to determine the value of these retail businesses and to pay accordingly.

Kathmandu has had been an impressive performer in the last six months, with its share price rallying 54%. Multi-brand retail owner Premier Investments (ASX: PMV) has also provided shareholders with a great six-month return, gaining 41%. Department store Myer (ASX: MYR) has risen 34.5%, while David Jones’ (ASX: DJS) shares have lost 3.5% in the last six months. At the smaller end of the market, Specialty Fashion Group (ASX: SFH) with a market capitalisation of $123 million has gained 28%.

Foolish takeaway

The retail sector is continuing to experience tough headwinds, as evidenced by Retail Adventures’ collapse. Amongst all this noise however, as is often the case in the stock market, share prices and valuations can sometimes significantly diverge and create investment opportunities for the alert investor.

As billionaire value investor Warren Buffett says: “Price is what you pay. Value is what you get.” It’s a good quote to remember as we embark on the 2013 investing year.

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Motley Fool contributor Tim McArthur owns shares in Myer and Specialty Fashion Group. The Motley Fool’s purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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