Many U.S. retailers suffering huge losses from online competitors appear to have received a momentary holiday reprieve.

The SPDR S&P Retail ETF (XRT) has gained 16.0% from a recent midday low on November 8 through the open on Thursday on optimism about holiday sales, and now is up 1.9% for the year-to-date. Among the retailers participating in this bounce are, with their gains over the same period: Foot Locker Inc. (FL), +59.6%; Macy's Inc. (M), +46.2%; Kohl's Corp. (KSS), +26.1%; TJX Cos. (TJX), +10.2%; and Ross Stores Inc. (ROST), +21.0%.

Return to Reality In 2018

But that holiday glow may fade in 2018 as retailers face anew longterm competitive forces that are stealing their market share and hammering their profits and stock prices. Those negative forces include competition from online merchandising juggernaut Inc. (AMZN) and brick-and-mortar behemoth Wal-Mart Stores Inc. (WMT) that is intensifying, not abating. As a result, the recent gains for these traditional retail stocks may be fleeting. "At this juncture, it's a two horse race," says Brian McGough, head retail analyst at Hedgeye Risk Management, referring to Amazon and Wal-Mart in remarks to Barron's. (For more, see also: Amazon's U.S. Market Share Will Jump to Nearly 50% This Year.)

Retail Evolution

To be sure, many traditional retailers are adapting by launching their own online sales operations to attract customers by offering a hybrid of both web and brick-and-mortar sales options. But this may not be enough. A popular line of reasoning behind the decline of old-line department stores such as Macy's and Kohl's is that shoppers now buy things differently, according to Barron's. McGough has a slightly different view. In essence, he tells Barron's that Amazon and Wal-Mart represent the latest evolution in the concept of one-stop shopping under one roof. At one time department stores filled that role. Then it was malls with a variety of specialty retailers in close proximity, and typically with one or more large department stores as anchor tenants.

McGough might have added that the big online retailers of today, with their own dizzying arrays of merchandise, also represent a modern version of catalog shopping, as pioneered by Sears and Montgomery Ward in the 19th century. "The thing that hasn't changed is that people want great products, and will get great products," he tells Barron's.

Death Spiral

However, traditional brick-and-mortar retail establishments are losing foot traffic, and many malls are in a death spiral as shops close, reducing traffic more, leading to additional waves of closures. Overcapacity in physical retailing is growing. (For more, see also: Are Retail Stocks The Next Subprime Meltdown?)

Another persistent problem for traditional merchants that is not bound to go away in the foreseeable future is the pricing pressure exerted by online retailers. Amazon, in particular, is noteworthy for its aggressive long-range plan to acquire market share by offering low prices. As long as its investors continue to endorse this strategy, forgoing current profits in the process, Amazon is bound to keep growing. To survive, traditional retailers have to match Amazon's lower prices, badly squeezing profits.  Unless they can find a way to reduce their cost structures dramatically, this price competition may prove deadly.  

Already in deep, long-term decline and frequently rumored to be close to bankruptcy, Sears Holdings Corp. (SHLD) has implemented an aggressive price-cutting plan this holiday shopping season. Whether this reverses the decline or simply provides a temporary respite remains to be seen. (For more, see also: Sears' Holiday Survival Strategy: Slash Prices.)

Off-Price 'Losers'

Off-price apparel sellers Ross Stores and TJX, the parent of T.J. Maxx and Marshall's, are believed by some observers to be largely immune from the online onslaught. The theory is that digging through the racks to find bargains among an ever-changing array of factory seconds and discontinued styles is not easily replicable online. As a result, Ross hasn't even bothered to open up an online shopping portal, and TJX's web operation contributes a negligible level of sales, per Barron's.

Randal Konik, an analyst at Jefferies LLC, tells Barron's that these stores are "losers" that will be hurt eventually by failing to embrace e-commerce. "They're on the verge of not mattering any more," McGough tells Barron's, pointing to emerging technologies that allow people to take their measurements at home, and order clothing (presumably at reasonable price) that meets their specifications.

All this means that the holiday surge in traditional retailers' stock prices, however gratifying to their investors, may be as ephemeral as the styles and fashions so many of them sell. The onslaught from online rivals in 2018 may pose an even greater threat to these companies than ever before.