Four of the market's premier retail brick and mortar stocks - Macy's Inc. (M), Gap Inc. (GPS), Kohl's Corp. (KSS) and Nordstrom Inc. (JWN) - have seen their shares plunge this year, all making the list of the S&P 500’s five worst performing stocks year-to-date (YTD). Meanwhile, the broader market has rallied to new highs, with the S&P 500 up 19.4% in 2019. These struggling retail stocks are likely to fall further as consumer spending and consumer confidence slows. Meanwhile, the traditional retailers will have to move quickly to fight off newer competitors adapt to new commerce trends to catch up, as outlined in a recent Wall Street Journal report.
While retail made a short comeback last year, the recent decline in these four stocks demonstrates investors’ concerns over many of the older companies’ inability to keep up with e-commerce trends. Shares of Macy’s are down 28.9% YTD through Wednesday close, while Gap is lower 30.7%, Kohl's has declined 28.9%, and Nordstrom has fallen 34.9%.
Not all traditional retailers are being punished -- as shares of Walmart Inc. (WMT), the world’s largest retailer, have beaten the broader market thanks to the company’s successful investment in online business and delivery services.
E-commerce companies have also seen their shares increase as investors bet on the biggest consumer trend. Amazon.com Inc. (AMZN) stock has returned 34.3% in 2019, while eBay Inc. (EBAY) has gained 42.5% over the same period. The success of the mega e-commerce leaders can largely be attributed to their foray into new markets like apparel and home goods. Some niche retailers, such as discount chain TJX Companies (TJX), the owner of T.J.Maxx, Marshalls and HomeGoods, have also managed to save themselves from the retail apocalypse.
Nordstrom: S&P 500's Worst Performer in June
That said, companies that still rely on physical stores have struggled to keep foot traffic up as consumers increasingly prefer to do all of their shopping online. Earlier this month, shares of Nordstrom fell on a UBS downgrade, posing as another blow to the stock which was the S&P 500’s single worst performer last month. Before the bearish note from UBS, Nordstrom stock was already down near 33% through June, in part due to an escalation of trade tensions between the U.S. and China.
Shares of legacy retailer Macy’s, who has had one of the hardest times evolving to meet new consumer trends, has trended lower since plunging in January after posting weaker than expected holiday sales.
In May, even after Macy’s posted Q1 earnings results and guidance for the full year that exceeded the consensus estimates, its stock went lower. The company has doubled down on a transformation plan, investing in omni-channel options as well as slashing costs and significantly reducing its headcount. Earlier this year, Macy’s said it was shooting to reduce costs by $100 million with its latest multi-year restructuring initiative, as cited by Barron’s.
Gap was also hit by heightened fears of a U.S.-China trade war that threatens to eat into costs and take a bite out of profits. Investors sent shares even further when the San Francisco-based company released weaker-than-expected results for the first quarter, and cut guidance for 2019.
Kohl’s has been partially saved by a partnership with Amazon, in which the Seattle-based retail titan has teamed with the discount store to improve the efficiency and therefore margins of its return service.
Any trade resolution could improve the outlook for retail stocks, potentially lifting the SPDR S&P Retail ETF (XRT), which is still up 4.4% YTD.
As for the traditional retailers above, it’s likely going to take more than one good quarter for any of these companies to convince investors that they are fit to lead in the next-generation of commerce.