Categories Analysis, Markets, Retail

Retail sector may be heading to a dry holiday season

The run-up to the holiday season has never been so disappointing for the retail industry, with lackluster financial performance and weak guidance weighing down on the market value of several leading players.  It seems concerns over the long-term headwinds to profitability are outweighing the positive factors like economic growth and low unemployment.

Save for Walmart (WMT), most retailers came out with unimpressive results for the most recent quarter. The underlining weakness in market sentiment is so strong that even Walmart’s shares remained in the red over the past week despite the company posting above-consensus third-quarter numbers.

Leading the retail rout this week, Target’s (TGT) stock suffered its worst loss in more than a decade after the company reported unimpressive earnings results. Hurt by its own weak guidance, combined with the ripple effect of the Target slump, Kohl’s (KSS) lost sharply after the earnings announcement Tuesday morning.

Leading the retail rout this week, Target’s stock suffered its worst loss in more than a decade after the company reported weak earnings results

The case of troubled home improvement chain Lowe’s (LOW) was no different, while Home Depot (HD) shares continued the downtrend after reversing the modest gain that followed last week’s earnings report. Being the only exception, Best Buy (BBY) stood out by closing the session higher. Though e-commerce firms Amazon (AMZN) and Alibaba (BABA) slipped initially, they recovered quickly.

The poor investor sentiment and the weak outlook for the current quarter signal that most store operators and bracing for a dull holiday season. Adding to the concern is the challenges being faced by the brick-and-mortar retailers, with many being forced to lower their store count amid shrinking footfall.

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On the heels of Sears (SHLD) deciding to shut down 40 stores early next year – among the last of the bankrupt retailer’s outlets currently open – Lowe’s this month revealed plans to close its underperforming stores in the US and Canada. Lowe’s is clearly treading the path of Toys R Us and Matters Firm, which had to get rid of their outlets during the bankruptcy process.

Two retail winners to buy ahead of holiday season

The slump is not limited to merchandise retailers. Starbucks is preparing to discontinue in 150 locations in the US next year, citing poor sales. However, the coffee chain is looking to compensate that by expanding its footprint in the Asian markets, especially Japan.

The non-viability of operating large store networks in the fast-changing retail environment was underscored by the abrupt closure of scores of Sam’s Club stores my Walmart earlier this year. To everyone’s surprise, it was done without giving any explanation – by a company known for its ethical business practices.

 

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