Money is not a client of any investment adviser featured on this page. The information provided on this page is for educational purposes only and is not intended as investment advice. Money does not offer advisory services.
It's shaping up to be another tough year at the mall.
Warnings from apparel maker Perry Ellis, whose clothing brands fill the racks of many retailers, and other companies suggest teens and other shoppers are still ho-hum about spending on fashion and that investors should be cautious, especially about mall-dependent retailers.
A trifecta of Silicon Valley-led trends could hurt companies that depend on foot traffic at suburban shopping malls: Teens are spending more time on devices and less at the mall; consumers are increasingly willing to buy clothes online, often from internet-only stores, and consumers in general have shifted their priorities away from clothing and toward technology and home improvement.
Wall Street analysts on average expect several months of falling or barely-growing revenues from Gap, American Eagle Outfitters and other mall mainstays. They see a glimmer of hope at year end, with shoppers potentially buying more winter attire than in 2015, when the weather was mild in parts of the United States.
"We've had a hard time finding very many names in apparel retail," said Robert Marvin, co-portfolio manager of the $130 million Hood River Small Cap Growth Fund, who said he is mostly steering clear of the sector because it does not seem favorably priced, based on the restrained outlook.
The fund does own shares of shoe and cap seller Genesco because Marvin expects a turnaround after last year disappointed and after the company shook up leadership in its Lids division.
With the propagation of privately held fashion ecommerce stores like Everlane and ShopBop competing with Amazon, as well as more customer-friendly shipping policies from traditional retailers, clothing and accessories outsold computer gear online for the first time last year, reaching $17.2 billion in the fourth quarter, according to comScore.
"Kids don't need to go the mall anymore to socialize," said BB&T stock analyst Corinna Freedman, who frequently visits Foot Locker, Coach and other retailers she covers. "The mall is no longer the hangout place it once was."
Shares of apparel retailers have performed poorly. Aeropostale has lost 93% in the past year and recently warned of potential liquidity problems. Shares of L Brands, the owner of Victoria Secrets, are down 12% so far in 2016, missing out on much of a stock market rally since mid-February.
Some of the blame for those woes has been laid at the feet of teenagers happy to wear inexpensive outfits mixed and matched from "fast-fashion" sellers like privately held Forever 21, with little interest in the brand-labeled clothes sold by longer-established stores like Abercrombie & Fitch Co.
Apparel and accessories retailers in the S&P 500 retailing index are expected to post a 1.3% drop in first-quarter earnings, followed by a 1.9% increase in the second quarter, according to Thomson Reuters I/B/E/S analyst David Aurelio.
Many of them will close out their fiscal first quarter in April and report results in May.
Macy's, the operator of Bloomingdale's as well as its eponymous department stores, is seen posting three quarters of declining revenue before eking out a 0.3% increase in the holiday quarter. In comparison, home improvement retailers are expected to report a 16% climb in profits in their first quarter and second quarters.
Perry Ellis International on Tuesday warned that retailers are being cautious about their inventories. Buckle, which sells clothes for teens, saw its sales fall 11% in March, and Gap reported a worse-than-expected 6 percent drop in March same-store sales.