#$stmp

DIM pricing may send shares of certain e-commerce companies into a free-fall 

The convenience of online shopping with in-home delivery, has resulted in an increase in the number of lighter weight packages in bulkier boxes being shipping to homes across the world.

As of January 2015, a new dimensional weight pricing model adopted by two dominate e-commerce parcel shipping companies (FedEx and UPS) now charges retailers for ground delivery according to package size rather than actual weight.

Larger shippers (Amazon) and Internet retailers aligned with 3PLs like Red Stag Fulfillment (RSF), will have the advantage as they have become very astute in collecting and analyzing data. However many e-commerce companies still don’t use 3PLs (third-party logistics providers).

‘Today’s Mom’ pregnancy pillow for example

In it’s April 2015 cover story, BabyAge.com’s founder and CEO Jack Kiefer told Internet Retailer magazine that, “Dimensional pricing resulted in one of its hottest products - the Today’s Mom pregnancy pillow - shipping as an 18-pound package, nearly double its actual 10-pound weight.”

“If you take the DIM weight factor and other standard rate increases and residential surcharges, it got to the point where we were looking at it costing $9 to ship a 1-pound package across the street.”

Cost to ship the world’s most popular metal detector -- up 500% 

According to Kellyco Metal Detectors, the world’s oldest and largest retailer of metal detectors, “Dimensional pricing resulted in one of our hottest products -the Garrett Ace 250  - shipping as an 15-pound package, nearly double its actual 2.7-pound weight.”

I asked David Auerbach (whose father Stu founded KellyCo) what he plans to do. He said moving to FBA (Fulfillment by Amazon) was not a good fit, but RSF is. Customers simply pay us a $5 flat rate. 

How much are shipping fees up?

According to the same IR article, “How much shipping fees are up varies by product and a retailer's volume. Some say prices are up as much as 30% which includes an average 4.9% annual rate high, various residential and fuel cost surcharges.”

I'm not an economist, but I can spot a trend

At the ‘water coolers’ in e-commerce companies I'm hearing three (3) questions of concern:

If we pass this (DIM pricing) cost on to our customers how many will we lose?

What will our margins be if we eat the cost?

Will we still be in business 1 year from now?

Shipping expense warnings are in SEC filings

From the top of page 15 of Zulily’s 10-K (filed December 28, 2014), “Our relatively slower delivery times (average order-to-ship time of 13.7 days) may place us at a competitive disadvantage to other ecommerce retailers and may cause customers to stop purchasing from us.”

“If we are required to decrease our delivery times to address this competition or to meet customer demands, we may be required to incur additional shipping costs, which we may or may not be able to pass on to our customers, or to change our operations to carry additional inventory and face additional inventory risk, either of which could adversely affect our business, financial condition and operating results.”

What does this uncertainty mean for shares in specific e-commerce stocks?

As the publisher of the 'Moving the e-Markets' Valuation Index, here are my thoughts as of April 18th, 2015. I believe nine (9) stocks with direct exposure to DIM pricing should be avoided until the dust settles. In order of EBTIDA valuation they are:

Zulily

Groupon

Overstock

U.S. Autoparts

Blue Nile

Nutrisystems

PetMed Express

1-800-Flowers, and

Wayfair (EBITDA valuation not meaningful)

The views in this article are my own and not those of my employer, BG Strategic Advisors

If you are fascinated by the e-commerce sector like me, or want an edge in regard to direction of stocks, please follow me on Twitter @AbeGarver

5 Trade ideas excerpted from the detailed analysis and plan for premium subscribers.

CNOOC, Ticker: $CEO

CNOOC, $CEO, sold off with the Crude Oil decline, but began a consolidation process in December. It ended the week pressing against downtrending resistance and the 20 day SMA, unable to move over it. But the MACD and RSI are diverging higher. The RSI is making a new 4 month high as it moves over the mid line. Watch for price to follow higher.

Catamaran, Ticker: $CTRX

Catamaran, $CTRX, moved higher off of a bottom in October into a consolidation zone that started in early December. Friday left the price testing resistance for the second time. With the MACD crossing up last week as a buy signal, and the RSI rising watch for a break of resistance higher.

KKR, Ticker: $KKR

KKR, $KKR, has made a Champagne Coupe Bottom™, finding itself at the top of the rim Friday. As it arrives there the RSI is rising and strong while the MACD is crossing up, giving a buy signal.

Lear, Ticker: $LEA

Lear, $LEA, rose from the October low into a consolidating pattern as well. With a rising trend support, the ascending triangle is building now as price sits at resistance Friday. The RSI is rising and bullish while the MACD is crossing up. You know the drill.

Stamps.com, Ticker: $STMP

Stamps.com, $STMP, has run through a long Cup and Handle pattern through 2014. Friday showed signs of the price breaking the handle to the upside. This came with the RSI bouncing off the lower limit of the bullish zone and the MACD turning, and heading for a bullish cross up.

If you like what you see sign up here for how to trade these, more ideas and deeper analysis.

After reviewing over 1,000 charts, I have found some good setups for the week. These were selected and should be viewed in the context of the broad Market Macro picture reviewed Friday which, heading into the last week of January sees the equity markets churning, but at different paces.

Elsewhere look for Gold to continue in its uptrend while Crude Oil continues lower. The US Dollar Index also looks to continue higher while US Treasuries consolidate in the uptrend. The Shanghai Composite is taking a breather in its uptrend but Emerging Markets are breaking higher, at least in the short term.

Volatility looks to remain low but drifting gently higher over time slowing the wind at the back of the equity market. The equity index ETF's are reacting differently to these factors. The IWM is continuing its consolidation but with sings it may break higher, while the SPY consolidates in its uptrend, perhaps passing the baton to the small caps. The QQQ has been acting mostly like the SPY but looks much stronger, with a possible break of a bull flag higher brewing. Use this information as you prepare for the coming week and trad'em well.

If you ask my partners they will tell you that I think Stamps.com, $STMP, may be the stupidest company in the world. The only people that still use stamps are either your over 70 relatives (flash - that demographic is shrinking), or your children who you are forcing to write thank you notes to those over 70 relatives. You can get the bank to send your bills for free. You email, text or snapchat with your friends. Who needs stamps!

Yet the chart of the stock price for this company looks ready top take off. The chart above shows a Cup and Handle pattern that started in late 2013. As it builds the handle on this weekly chart it is showing some signs that the pullback may be over. The Small body candles are one of them. The declining volume another.

A move back higher and this piece of crap concept of a company could target a move to 68. Whether you like stamps or not that would be worth the ride. But the momentum indicators are not so convincing. The RSI is falling, but still bullish, while the MACD is level, and may be starting to roll over.

The daily chart gives technicians another reason to watch. If the low from yesterday holds and the price continues higher then a positive RSI Reversal is also in play. This would put it back on track toward 50. It also gives a logical stop point, or short sale trigger, under 45. Short interest is under 3% so perhaps I am not in the consensus on the macro view of the company.