U.S. retail stocks have been slogging through a difficult year as consumers flock to Amazon.com, Inc. (NASDAQ:AMZN) and millennials keep their purse strings pulled tightly shut.
The climate for American retailers, especially those with a great deal of physical locations, is dismal and there is some speculation that things are only going to get worse. The downtrodden sector offers investors several bargain buys whose efforts to turn things around could pay-off handsomely.
However, these three retail stocks are still likely to continue on the downward trajectory for a long time to come.
Retail Stocks With Double-Digit Downside: Macy’s Inc (M)
Department store giant Macy’s Inc (NYSE:M) has had a tough year, with the firm’s share price shedding nearly 40% since last September. Despite a wave of store closures and a new partnership with electronics giant Apple Inc. (NASDAQ:AAPL), the outlook for M stock looks bleak.
First, consumers are losing interest in big-box department stores. The new generation is becoming increasingly cautious about where they spend and high-end goods are low on the list of priorities. Secondly, online shopping is grabbing market share and Macy’s has been struggling to keep up. Although M saw online sales increase during the last quarter, the firm’s online presence is still weak at best.
Although Macy’s has put much of the blame for its declining sales growth on a stronger dollar and fewer international tourists, the real problem M is facing is that the store is becoming antiquated and without a major shift, consumers will continue to abandon it. Putting Apple products in-store is a good first start to draw in more customers, but M will have to do much more to stop the bleeding.
In the quarters to come, Macy’s cost cutting efforts are unlikely to outweigh declining sales figures and until the store addresses its core issue, investors should be wary.
Retail Stocks With Double-Digit Downside: Kohl’s Corporation (KSS)
Discount department store Kohl’s Corporation (NYSE:KSS) looks like a bargain buy with a 4.6% dividend yield, but the firm is in the same boat as Macy’s despite the fact that the store offers lower-priced items. KSS stock has fallen 16.5% since last September, as the company struggled to fight against online retailers like Amazon and sales figures declined.
Kohl’s, like Macy’s, has been closing underperforming stores and hopes to improve the consumer experience by expanding its beauty offerings and creating a new loyalty program.
Unfortunately, this doesn’t address the growing online shopping trend and is probably not enough to create a unique shopping experience that will lure customers into the stores. Kohl’s has also been spending on improving its online shopping offerings, but although online sales have improved, it remains to be seen whether it will be enough to build a strong online presence. If its efforts to expand online fail, Kohls runs the risk of becoming obsolete, especially since consumers are unlikely to pay a premium for the experience they get shopping in a Kohl’s store.
Even taking online shopping out of the equation, Kohl’s is still unlikely to make a comeback anytime soon because the retailer is competing against competitors like TJX Companies Inc (NYSE:TJX) and Ross Stores, Inc. (NASDAQ:ROST), whose business models are thriving in the current climate.
TJX and ROST both benefit from excess inventories because they sell brand-name clothes from previous seasons. KSS, which has been struggling with excess inventories itself, has lower margins and will lose market share to thriving stores like TJX in the near-term.
Retail Stocks With Double-Digit Downsides: Staples, Inc. (SPLS)
Staples, Inc. (NASDAQ:SPLS), perhaps the worst retail stock of the bunch, is another store whose business may have been irrevocably damaged by the rise of online shopping. The company’s second-quarter results showed a $766 million loss — something that investors should certainly be wary of.
Things looked like they could be picking up for the office-goods supplier when the firm announced plans to merge with Office Depot Inc (NASDAQ:ODP); however, since those plans have fallen through, SPLS has very little upside.
Staples has felt the pressure from online competitors like Amazon, which not only allow customers to buy products from the comfort of their desks, but often undercuts Staples on prices. This has left the office supplier with very few options and led Staples to lower its own prices in order to stay competitive, something that has drastically reduced margins.
While it’s true that Staples has begun expanding its online offerings with things like same-day delivery, the firm still needs to find a way to incorporate an online presence that compliments its physical stores. SPLS has completely reworked its strategic plan and it has seen a change in leadership over the last year, so it’s possible that a turnaround is somewhere on the horizon.
However, the products that Staples is known for are just too easy for consumers to buy online, so a comeback is unlikely.
As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities.