People used to buy anything the needed from department stores. From clothing to home goods and more, department stores were the place to buy a suit, replace your bed sheets, and even buy a hit CD. These giant stores often offered competitive prices, enticing sales, and lucrative rewards for repeat shoppers. Millions of people even held credit cards meant for use at specific stores, pledging financial allegiance to their nearest Sears or JC Penney.
In the ’00s, department stores faced a fierce competitor in Amazon.com. The upstart shopping site let users stay home instead of driving to their nearest department store, instead receiving items a few days later with free or cheap shipping. Many other online retailers followed suit, offering clothes at comparable prices and free returns without entering a store. The need for department stores declined, though department stores kept living as though they had nothing to worry about.
Now, every clothing chain in the world has an online storefront. Amazon is arguably the biggest retailer in North America — even bigger than Walmart — and sells absolutely everything with the option for near-instant delivery. Department stores, on the other hand, are closing up left and right.
Yet department store closures aren’t the worst thing to happen to mainstays like Sears and Macy’s. In fact, there might be more dire consequences to come. To see the future of department stores and retail in general, you need only look at the stock market.
Department store stocks are way down.
Stores like JC Penney ($JCP), Macy’s ($M), and Sears ($SHLD) are dropping in value on the stock market. Sales, profitability, and in-store foot traffic is down significantly at all three stores. Each company is closing locations, laying off thousands of employees, (allegedly) weighing acquisition talks as they continue to hemorrhage money and customers. JC Penney and Macy’s both announced their quarterly earnings this week, missing analysts’ expectations and disappointing shareholders in the process. Sears, on the other hand, has a CEO who publicly stated that they “don’t need more customers” as the company moves closer to bankruptcy.
The entire retail market is down.
The S&P Retail Select Industry Index, a measurement of retail health, is down 4.53% this year so far. This index (and the ETF that follows it) measures the overall health of the retail sector. So if the index is up, retail stocks are assumed to be doing okay. If it’s down — which it is — then the health of the retail market is in jeopardy. Considering the number of stores closing or going bankrupt, it’s safe to say that the retail industry is in a bad place.
Amazon is doing really well.
Physical stores might be doing poorly, but Amazon ($AMZN) is breaking records. The company’s stock is up 28.2% so far this year and 33.9% in the last year. One could argue that the company is as big as it is because they’ve gobbled up most retail sales, including purchases from department stores. This might be true, though competing fast-fashion and specialty shops (especially those with online storefronts) have taken a chunk of the revenue from former retail giants, too.
Should you invest in retail?
Some retail stores are actually doing well, like Home Depot ($HD). Yet the bulk of the retail market is in a decline (or “bubble,” according to some people). If you want to invest in any department stores, know that your investment will likely decline in the coming months and years as the industry continues to struggle. Chances are that the only time the stocks will increase is when these companies are acquired by bigger, more capable corporations.
If you want to wait out the inevitable acquisition spree of these department stores, be sure to do your research before you invest. If you think retail will continue to circle the drain, you might want to invest elsewhere.