Wal-Mart Stores, Inc. (NYSE:WMT) is an easy target for the bears this week after Thursday’s earnings miss. But it’s hardly alone.
Higher-end fashion darling Kate Spade & Co (NYSE:KATE) crashed about 25% on weak numbers a few days back.
Bigger-picture, U.S. retail sales stalled unexpectedly in July to a 0.1% growth rate for the “core” sales segment that backs out auto sales and other noise.
Macy’s, Inc. (M) also missed — and this upscale department store had been one of the few bright spots in the sector with 48% returns in the last two years to outperform both the S&P 500 and the SPDR Retail (ETF) (NYSEARCA:XRT).
Sure, Wal-Mart Stores, Inc. has been a dud for some time. But clearly, this is not just a tale of one or two retail stocks having specific troubles.
Everywhere you look in the retail sector, things are ugly — and they are sure to get worse in the months ahead.
TGT and WMT Stock in Deep Trouble … But Not Alone
As I wrote recently, Goldman Sachs (GS) has penned a research note that sums up the pain for many retailers in just one thought: “Consumers appear more focused on some combination of value and convenience,” which means many brick-and-mortar companies — particularly discounters and big-box giants like Wal-Mart Stores, Inc. and Target Corporation (NYSE:TGT).
The obvious pressure for these retailers when it comes to value and convenience comes from online retailers like Amazon.com, Inc. (NASDAQ:AMZN) and eBay Inc. (NASDAQ:EBAY). Both companies allow for rapid shipping of sometimes hard-to-find goods directly to your door, at competitive prices that are transparent. Considering that Wal-Mart Stores, Inc. in particular only operates in rural areas or suburban wastelands, that’s not a very convenient option for many urban consumers
Yes, TGT and WMT stock also are suffering from leadership vacuums right now; new Wal-Mart Stores, Inc. CEO Greg Foran just took over in July, and Target just named a new CEO in PepsiCo (PEP) veteran Brian Cornell after its previous leader resigned amid the fallout of the data breach.
But look around. When upscale retailer Macy’s, Inc. hits a snag, it’s clearly not just about the value segment.
Furthermore, companies like Kate Spade & Co and Michael Kors Holdings Ltd (NYSE:KORS) — which produce high-end apparel but aren’t primarily involved in the storefront game — are also hurting; both stocks are down more than 15% over the past three months.
There’s something disturbing going on here on the consumer front, with all manner of retail-related companies feeling the pain.
And worst of all, it seems like this trend is bound to continue as stores like Macy’s, Inc. and Wal-Mart Stores, Inc. continue to lower future forecasts even after the damage that has been done.
Investors need to tread very carefully in the retail sector right now.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP.
