The “retail apocalypse” has been years in the making. But with the novel coronavirus pandemic in 2020, we saw the number of store closings accelerate. The “new normal” had an adverse affect on brick-and-mortar retail stores. We should expect this trend to continue in 2021.
You may think it’s just the hard-hit department stores that are looking to pare down their brick-and-mortar presence. A prime example is JC Penney’s (OTCMKTS:CPPRQ), which after filing for bankruptcy last year has sold its operations, with the bankrupt shell (renamed Old Copper Company) holding its real estate assets until it completes its reorganization plan with creditors.
But, more resilient chains are also shuttering operations, as they embrace an increasingly e-commerce dominated retail landscape. For some, announced closings haven’t been taken as bad news by investors. Instead, their respective share prices have either rebounded, or headed above, pre-pandemic price levels.
In short, store closings have been bad news for some retailers, but good news for others. What are some of the most high-profile retailers shuttering down locations? These five come to mind:
- Bed Bath & Beyond (NASDAQ:BBBY)
- Gap (NYSE:GPS)
- GameStop (NYSE:GME)
- L Brands (NYSE:LB)
- Macy’s (NYSE:M)
Store Closings: Bed Bath & Beyond (BBBY)
Home goods chain Bed Bath and Beyond closed dozens of stores in 2020. But it’s set to close more, as it intends to shutdown 200 locations by 2022. Yet, this hasn’t scared investors away from its stock.
Quite the opposite, actually. BBBY stock fell from around $15 per share into single-digits, as the pandemic first hit America almost a year ago. But rather than fail to adapt, the company made an aggressive pivot into online retail. This placed it at the forefront of the “shop at home economy,” and ultimately led to an epic rebound in the second half of 2020.
Hitting pre-pandemic price levels by October, shares of the once overlooked company briefly soared to prices near $25 per share later that month. Since then, BBBY stock has pulled back to around $19 per share. However, as InvestorPlace’s Brett Kenwell wrote Dec. 30, there may be additional runway left for this retail comeback story.
Why? As it continues to beat expectations with its omni-channel strategy, this still heavily shorted stock could see a short squeeze. This would fuel a rally in BBBY to even higher price levels. Keep in mind that, even with high skepticism on Wall Street, a full Covid-19 recovery may be already priced into shares. But, with investors seeing store closings as good news rather than bad news, Bed Bath and Beyond remains a retail play to keep on your radar.
Gap (GPS)
Similar to BBBY stock, GPS stock is another resilient retail name where investors have by-and-large priced-in a recovery. Admittedly, underwhelming quarterly results took some of the wind out of its rebound in late November. But, at today’s prices, investors are still betting on a full recovery sooner than later.
Gap was already in the process of shuttering locations before Covid-19. With the outbreak, this shutdown accelerated. In fact, the retail giant announced that it would close 350 locations by 2024. But this may — oddly — be a sign of better times ahead. Although the company is shutting down many of its namesake stores, its other well-known brands (Athleta and Old Navy) remain strong.
For the quarter ending Sept. 31, sales for these better-performing brands soared 35% and 15%, respectively. As a result, while its Gap and Banana Republic brands continue to shrink, both Athleta and Old Navy continue to expand their brick-and-mortar footprint.
Ultimately, there’s plenty of opportunity for near-term gains in GPS stock as the company shuts down its less profitable locations and invests more in what works.
GameStop (GME)
Just six month ago, GameStop was a “cigar butt stock” that attracted only the most contrarian value investors in the game. But since the greater fall of retail during the pandemic, more investors have jumped on the bandwagon with this declining video game retailer. In fact, GME stock has soared nearly 360% since July 10.
Why? There are many reasons. But lately, investors have been interested in what Chewy (NYSE:CHWY) co-founder, Ryan Cohen, can do take this company off the path towards obsolescence. Cohen’s activist efforts with GME stock have led to three new board seats. GameStop is already aggressively moving out of brick-and-mortar retail, as seen from its announcement to shutter 1,000 more locations, in addition to the 780-plus stores it has closed since 2018.
However, as promising as this seems, it may be erroneous to say that the company can “crush it” if it makes a strong pivot towards an omni-channel retail strategy.
As Seeking Alpha commentator Matt Stewart discussed earlier this month, this “cigar butt” stock may not have many puffs left. That is to say, investors may believe this company can still thrive in an era where video games are downloaded rather than bought in physical form. But, given how much of its profitability depended on the sale of pre-owned games, and the fact the industry may no longer need an intermediary once video games are no longer sold in physical form, those seeing this as a future e-commerce play could be barking up the wrong tree.
Unlike some of the other retail stocks listed here, the company’s mass store closings look like the beginning of the end for GME stock.
L Brands (LB)
Given that L Brands is the parent company of Victoria’s Secret and Bath & Body Works, it’s no shock this mall-centric retail stock is suffering thanks to the pandemic. The company shut down hundreds of locations due to Covid-19. It also projected last May that the closures would continue in 2021 and 2022.
Yet, while LB is reducing its brick-and-mortar presence, the company is thriving overall. Even with Victoria’s Secret posting double-digit in-store sales declines during the holiday season, the strength of Bath & Body Works (both in person and online) more than made up for it.
And these better-than-expected results may be just the start. The company expects to handily beat prior quarterly earnings projections. Results for the fourth quarter (ending later this month) are set to come in at between $2.70 per share and $2.80 per share.
With this in mind, the big recovery in LB stock since last Spring — a rally from under $10 per share to nearly $48 per share today — looks more than justified. And, its continued pledge to shut down under-performing stores could be a sign shares will continue to head upwards. It’s possible that the stock could return to the near-triple-digit price levels last seen in 2016.
Macy’s (M)
With its legacy peers like JC Penney’s and Sears (OTCMKTS:SHLDQ) in the ashcan of retail history, it’s easy to see the end of Macy’s as a “when, not if” situation. News of continued store closures supports this sentiment. After closing 30 stores last year, the company is set to close 45 more in 2021.
But despite the big hurdles its business model faces, investors haven’t been scared off of M stock yet. Yes, shares took an epic tumble last March (like the rest of the sector). But, like with the more resilient retailers, M stock has bounced back with a vengeance. Since November 2020, shares have doubled, from around $6 per share to more than $12 per share.
Is there enough in its favor to push its share price back to pre-pandemic price levels (around $16 per share)? Possibly. But, as InvestorPlace’s Josh Enomoto recently discussed, Macy’s was already struggling before the pandemic. Even with analyst upgrades, he’s skeptical the legacy retailer can come out of this crisis relatively unscathed.
Simply put, the jury’s still out on whether Macy’s is rebounding. If it’s all a mirage, then investors have priced-in an epic recovery that’s not actually happening. That’s a huge amount of risk to buy into.
Consider its news of more store closings as neither a bullish or bearish sign of what lies ahead. Only time will give us a clearer picture of M stock’s fate.
On the date of publication, Thomas Niel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.
