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Home / Business / JC Penney fades, Walmart thrives. Here's a look at retail today

JC Penney fades, Walmart thrives. Here's a look at retail today



A Nordstrom store in Irvine, California.

Scott Mlyn CNBC

Clothes stacked high on table. Clear sign hanging on the ceiling. Campaigns galore.

Have you been to a department store lately? It may look like that.

There has been a similar story for the shares in retail. There is a growing gap between the strong and the weak retailers struggling with stockpiling ahead of the holidays, and those who have a better grip on what consumers are looking for.

Nordstrom, Macy's and JC Penney shares are down more than 40% this year. Kohls shares are more than 30%.

Meanwhile, Walmart has climbed 20%. The goal is up 33%. S&P 500 Retail ETF (XRT) is up 3% this year.

Retail in this quarter does not look good compared to a year ago. The industry is expected to fall. For many companies, the need to reduce goods to move goods out of season from the shelves will end up weighing on profitability. And especially warehouse chains are still struggling to increase sales, while Walmart and Target have found grocery pockets through their e-commerce business and with their own brands.

Moreover, Walmart and Target have been able to compete with Amazon by giving their customers the opportunity to purchase items online and then retrieve them in stores the same day. They have gone before many other dealers with this approach. This increases digital sales and retail traffic. Walmart's sales of e-commerce rose 37% over the last quarter. Targt's digital turnover increased by 42%.

Overall, retail sales grew 1.7% in the first quarter, according to Retail Metrics, which monitors about 150 retailers' financial reports. For the second and the current quarter, revenues are expected to fall 4.2%, says Ken Perkins, president and founder of the retail research firm. And if this happens, it will mark the biggest quarterly downturn in retail since a 4.5% fall back in the first quarter of 2014.

"The sector is calling for innovation," said Craig Johnson, president of retail consulting firm Customer Growth Partners. With "the world's Amazon" gaining market share – meaning "you can find almost everything online somewhere, cheaper," Johnson said – some marginalized retailers will be squeezed "until the people [working there] come up with a new product." [19659002] Clothing spending is also expected to fall this year and again next year, with consumers increasingly reducing the proportion of their wallets devoted to clothing. Total clothing sales in the US amounted to $ 216.4 billion per the 12 months ended May 2019, according to the NPD Group's customer tracking service. The company predicts that total clothing costs will fall 1% to 3% this year. And no backlash is expected until 2021, NPD said.

If most of your business is devoted to selling clothes, you may be in trouble. The department store chains are much more dependent on the clothing category than Walmart and Target, which have large electronics and food businesses.

The fashion alternatives that consumers are targeting for clothing also start to draw attention from department store chains. It includes online style service Stitch Fix, rents like Lei Runway, or trendy start-ups The Real Real and Revolve. More and more clothing costs are also moving online. RBC Capital Markets has estimated about 30% of clothing in the US is purchased online today, but it will be 40% by 2023.

Meanwhile, the upcoming shopping season – which can be a good barometer of how companies come to To perform during the very important holiday season – does not look like it will give a boost to many, especially department stores.

UBS retailers analysts said in a note to customers this week that their US softlines are using the forecast, which predicts sales of clothing and accessories in US stores over the next 90 days, requiring a 0.9% decline the year before in August and September, and a fall of 0.5% in October. [19659002] "Many warehouses and specialty stores with great US exposure, such as Macy's, Kohl's, Nordstrom … look cheap on a [price-to-earnings] basis," said UBS analyst Jay Sole.

"However, we do not see buying opportunities in these names. These stocks probably need to improve the sales growth rate to catalyze the stock price and we think this scenario is unlikely over the next three months."

All this can end up being a recipe for disaster for some dealers, more those who have already struggled to give customers a reason to visit them. With brands such as Nike and Coach who are currently investing more in their own brick-and-mortar stores and websites, it reduces the need for a middleman as a department store operator to sell their sports bra and bags.

Facing these challenges, Penney, with his shares trading below $ 1, has hired advisers to deal with debt and "improve the capital structure." (The company said it did not hire any companies to prepare for a legal restructuring or bankruptcy, as anyone had suspected the case.)

High-end department store operator Barney's prepares for a bankruptcy filing that could Coming as soon as this month, people have known to CNBC. Case owner Hudson & # 39; s Bay Company is considering going private after the stock fell almost 50% this year through June.

Nordstrom, who is known in the industry to have stronger merchandising and better customer service compared to his peers, is even dragged down with the others. The shares trade $ 20 per share lower than an offer of $ 50 per share which it rejected two years ago as too low.

Wall Street sees many reasons to steer clear of space.


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