The retailing plight continues, with HHGregg, Inc. (OTCMKTS:HGGGQ) being the most recent of the major retail stocks to join the bankruptcy club — the electronics and appliance chain is now expected to officially file Chapter 11 within the next few days. In the meantime, Radio Shack reported it is also filing … or at least its parent company is. The echoes of last year’s similar bad news from Sports Authority haven’t even stopped ringing.
Those failures are just a microcosm of the trouble a whole slew of other retail companies are dealing with right now.
Though not every struggling name in the business is as doomed as HHGregg and Sports Authority are now, there’s a wide swath of retailers up against the ropes. They could be KO’d if they’re not careful.
Here’s a closer look at the four retail stocks you should be most afraid to own.
Retail Stocks in Trouble: Sears (SHLD)
No sense in beating around the bush … let’s start with the poster child of retail stocks that are essentially un-ownable. That’s Sears Holdings Corp (NASDAQ:SHLD), of course, which as of its most recent quarterly report posted on Thursday has logged 21 straight losses.
Oh yeah — sales have been shrinking since 2007 too, and the habitual losses certainly aren’t getting any smaller either.
In simplest terms, the premise of selling off pieces of the company to raise much-needed turnaround funding was flawed simply because the retail operation itself was flawed; the sale of real estate, brand names and entire divisions only does you any good if those funds are deployed to a business model capable of turning a profit. That’s not what Sears has, though.
That being said, one can expect Sears to sidestep any bankruptcy filing at least through July of this year. That’s when a bankruptcy court can no longer claim the mid-2015 sale of real estate assets to real estate investment trust Seritage Growth Properties (NYSE:SRG) was intended just to prevent the company’s top properties from being liquidated as part of any corporate divvying-up.
After that, anything could happen.
Retail Stocks in Trouble: Abercrombie & Fitch (ANF)
Once the iconic name in teen-apparel retailing, Abercrombie & Fitch Co. (NYSE:ANF) peaked in 2013 and has been logging weaker sales ever since.
What arguably dealt a death blow to the company, however, was 2013’s surfacing and circulation of regrettable comments made by now-former CEO Michael Jeffries. It was distasteful enough — even by teen standards — to incite an avoidance of a brand that was already losing relevancy.
To its credit, the mostly new management team for Abercrombie & Fitch not only seems qualified and sincere in terms of a turnaround, the committee-based leadership also seems to have a basic understanding of where the company went wrong.
As was the case with Sears, though, Abercrombie appears to be aiming to revive a flawed business model that mostly relies on mall foot-traffic and a preppy, brand-name-oriented mindset. Both are fading. The evidence? Last quarter — the all-important Christmas quarter — the company’s same-store sales fell 5%.
If the recovery was going to take hold, we should have seen more evidence by now.
Retail Stocks in Trouble: GameStop (GME)
While Abercrombie & Fitch and Sears Holdings are arguably struggling because they’re increasingly irrelevant, video game sales venue GameStop Corp. (NYSE:GME) is undoubtedly the one out of these four retail stocks that has the least chance of lasting for the long haul.
Once only sold in physical form at a brick-and-mortar store, video games are now just as easily downloaded, or even played online without even needing to download any software. That makes a game retailer mostly unnecessary.
It’s a paradigm shift that unexpectedly reared its head in a big way last week after Microsoft Corporation (NASDAQ:MSFT) unveiled Game Pass for the Xbox … subscription-based access to a wide array of games online (think Netflix, Inc. (NASDAQ:NFLX) for video gaming) rather than needing to purchase a game at all. Presumably, like Netflix, the game library would change over time, constantly giving subscribers something new.
Microsoft quickly followed up that announcement with a clarification that it intends to work with GameStop on its streaming service rather than compete with the retailer. It’s only a matter of time, though, before Microsoft and other video game publishers embrace the fact that they can circumvent a retail presence altogether.
Retail Stocks in Trouble: Macy’s (M)
Finally, for much the same reason Abercrombie & Fitch is struggling — a growing disinterest in, and need for, apparel shopping — department store chain Macy’s Inc (NYSE:M) is fighting an uphill battle it’s likely to lose.
Unlike A&F, Macy’s does own a great deal of the real estate where its stores are housed, and it has not been shy about selling them to raise much-needed cash in the shadow of a second year of declining sales and second year of declining profits. Some of those emptied stores were worth practically nothing, but one of them recently went for as much as $250 million.
The fact that the company is being forced to close 68 stores this year already (if they haven’t been shuttered already) and sell assets, however, isn’t encouraging. Just ask Sears. Shedding underperforming stores is less preferable than rekindling them as profit centers, and if the company can’t stop the paradigm shift working against its weaker stores, it’s only a matter of time before the same trend adversely impacts its stronger locations.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.