The coming year is set to be a turning point for retail stocks. For years, a growing interest in online shopping has kept investors skeptical and foot traffic low in many big-name stores. Consumer preferences have shifted dramatically, as companies like Amazon.com, Inc. (NASDAQ:AMZN) bring e-commerce into the mainstream.
Now, many firms are struggling to play catch-up by improving their own online offerings, creating in-store experiences and slashing overhead costs. For some, the transition has been painful but worthwhile. The efforts of others, however, appear to have stalled.
This year will be an important year for transitioning retailers, as it’s likely to bear the fruit of multi-year turnarounds and will give investors an indication of whether the companies’ efforts to remain relevant have made an impact.
That being said, there are a handful of retailers teetering on the edge of making it or breaking it and their performance in 2017 will be telling. Target Corporation (NYSE:TGT), Big Lots, Inc. (NYSE:BIG), Sears Holdings Corp (NASDAQ:SHLD) and Macy’s Inc (NYSE:M) are four such retail stocks that will be worth watching in the months ahead.
Retail Stocks to Watch: Big Lots (BIG)
Big Lots has made its name as an off-brand, discount retailer and the company has been successful in improving customer shopping experiences and growing successful parts of its business over the past few years.
BIG has been adding to its food offerings, hoping to draw in customers using food stamps and the store has added more brands to its repertoire and refurbished many of its locations.
While those improvements have been helpful, they didn’t help the firm’s sales figures, which declined in the fiscal third quarter. The big question for Big Lots is whether the company will be competitive online, an area the firm hasn’t quite gotten a handle on. The unpredictable goods that BIG carries makes it difficult for the store to compete with online retailers whose big draw is a more efficient, faster shopping experience.
BIG did push forward with its online presence this year, which was understandably challenging because of the wide selection of constantly changing goods it carries. Management has said that last year’s efforts to ramp up the firm’s online presence were hit-and-miss because the company is still in a transitional phase — which makes 2017 an important turning point.
Big Lots is either going to make it online or crash and burn and this year will provide a good snapshot of what investors can expect. If BIG can’t make its way into e-commerce, the firm is unlikely to prosper in the years to come.
Retail Stocks to Watch: Target (TGT)
Target has made a pretty successful push into women’s fashion and the store has become somewhat of a pop-culture icon. However, unlike its biggest competitor Wal-Mart Stores Inc (NYSE:WMT), TGT looks as if it’s floundering when it comes to an actionable plan for the future.
While it’s true that Target has made large strides on the digital front, the company has done very little else. Target’s earnings have shown that online sales are picking up speed, a good sign for the future. However, apart from that ray of hope, TGT’s overall sales figures were gloomy and the main reason for this has been decreased foot traffic.
Target needs to find a way to get people into its stores and increase the number of items they put in their baskets. Despite promises to build out its grocery business, Target appears to have abandoned that plan, saying that the firm never planned to become a full-service grocer. Competitors like WMT have done the opposite and watched their own grocery businesses pick up substantially. TGT’s unclear direction and lack of focus is a big problem at the moment, and 2017 will hopefully give investors a better idea of where the firm is headed.
Will TGT’s grocery aisles expand or contract? Is the firm shifting further away from brick-and-mortar locations? What will the company do to increase foot traffic in the coming months? These are all questions that will reveal themselves in 2017 for better or for worse.
Retail Stocks to Watch: Macy’s (M)
One of the hardest hit segments in the retail space has been department stores. Unlike one-stop shops like TGT and WMT, department stores struggle to compete on price. And since shoppers can’t do much of their every day shopping in a department store, it’s even harder to get customers through the doors. Macy’s is one such department store that has been sinking under the added pressure that e-commerce has placed on its business.
Not only is Macy’s hurt by the ease that online shopping offers, but the firm hasn’t been able to compete on price either. Unlike rival J C Penney Company Inc (NYSE:JCP), Macy’s has never appealed to low-cost shoppers, so the department store has to find new ways to interest customers and keep its business afloat. So far, those efforts have not bore fruit.
Macy’s reported disappointing figures for last year’s holiday shopping season, an indication that the company is near the beginning of the end. M has been working to reduce its store footprint and cut costs and has shifted its focus to its real-estate strategy and omnichannel experiences.
It remains to be seen whether those investments are worthwhile. Sure, Macy’s online sales are improving, but what’s happening in the brick-and-mortar stores where the majority of the firm’s money is made? Are staffing cuts helping or hurting the customer experience? What’s that ultimately doing to sales? Some say M is in a transition phase and that the firm is headed in the right direction, while others believe that Macy’s, along with many of its department store peers, are on the way out.
Retail Stocks to Watch: Sears (SHLD)
Sears is caught up in the same terrible storm that Macy’s is suffering through, but SHLD appears to be coping far worse with the damage. Sears’ third-quarter results showed that the firm is losing money and struggling to keep its head above water. Several big-name exes have already jumped ship as the company continues to close locations and try to stem its outgoing expenses.
Sears is indisputably in a bad spot, but CEO Eddie Lampert is still working to sell unprofitable parts of the business and invest in a smaller, more streamlined SHLD. So far, though, that strategy has done very little to stop the outflow of cash.
Last week, the firm sold its iconic Craftsman brand to Stanley Black & Decker, Inc. (NYSE:SWK) in what can only be described as the company’s last ditch effort to keep from going under. The deal gives SHLD a much-needed cash infusion of $525 million once it goes though, followed by a $250 million payout three years later and a fraction of Craftsman product sales for the next 15 years.
On one hand, SHLD may have sold off one of its last remaining supports. However, according to Lampert, the Craftsman sale will allow the firm to meet its financial obligations and continue investing in the company’s best “members, stores and categories.” This year, investors will get a chance to see if a leaner SHLD really is the answer, because the firm can’t cut out much else.
As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities.