The 3 Biggest Losers (and 4 Big Winners) in the 2019 Retail Apocalypse
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.
Store closures have been perhaps the biggest theme in retail in 2019. The so-called "retail apocalypse" has been ruthless this year, with 7,888 store closures in the U.S. announced so far, according to Coresight Research, compared to roughly 5,500 closures for all of 2018.
But while there are certainly some big losers in the 2019 retail apocalypse — most obviously, stores going completely out of business, like Payless Shoes, Dressbarn, and Claire's — there are also some major traditional stores that are positively thriving right now.
It's no surprise that Amazon continues to be a retail powerhouse. But growth of Amazon profits and ad sales have slowed down in 2019. Amazon stock may have risen 20% so far in 2019, but shares are surprisingly down 5% over the past 12 months.
What's also somewhat of a surprise is that a few of Amazon's biggest competitors — namely, Target and Walmart — seem to finally be cracking the code that will help them compete successfully with the world's biggest e-retailer.
Walmart and Target are reaping the benefits of longstanding efforts to boost online sales in the showdown against Amazon, and at the same time are trouncing traditional department store chains in the battle to attract shoppers into physical stores. Investors like what they're seeing too, particularly from Target, whose shares are up nearly 60% so far in 2019.
As Target CEO Brian Cornell explained to analysts last week, "In a world where consumers have more choices than ever, inferior brick-and-mortar experiences will go away.”
As the rampant store closures and going-out-of-business sales of 2019 demonstrate, many of these "inferior" retail experiences are already going away. More will surely suffer the same fate, perhaps before 2019 ends.
When it comes to the retail apocalypse, here are three major retailers struggling the most (but still remain alive, for now), along with four huge chain stores that are looking like big winners in 2019.
2019 RETAIL LOSERS
2019 Stock Performance: Down 40%
Sears has been described as "troubled" for so long, and its historic plunge from the heights of retail have been chronicled so often, that it's kind of amazing the company hasn't already shut down.
Sears, which merged with Kmart in 2004, operated roughly 3,500 stores as of 2006, and the company's stock price was up near $200 a share in 2007. For at least the past decade, though, the story at Sears has been that of declining revenues, widespread store closures, mounting debt, and plummeting stock prices.
Sears Holdings filed for bankruptcy in October 2018, and the company narrowly escaped death by accepting a takeover bid in early 2019. More Sears store closures are taking place this fall, and by the end of 2019 there may be only about 400 Sears and Kmart stores still open in the U.S.
Sears stock dropped below $1 for the first time last fall, and lately shares are trading for under $.30. Over the past 12 months, Sears shares are down over 75%.
2019 Stock Performance: Down 43%
Rumors of bankruptcy have been swirling around J.C. Penney, one of several classic department store chains that have tried — and, largely, failed — to successfully reinvent themselves over the past decade.
J.C. Penney is known for steep — some might say "fake" — discounting schemes. But it seems like Penney's sales strategies, the selection of merchandise, and the overall shopping experience in-store and online haven't resonated enough with consumers. Stores announced they would start selling home appliances for the first time in over three decades in 2016, but the initiative flopped and J.C. Penney gave up on appliances earlier this year.
J.C. Penney has been closing stores year after year, and more closures are being forecast. There are now about 800 J.C. Penney retail stores in the U.S., down from around 1,300 in the mid-1990s. The last time J.C. Penney stock was trading over $10 it was back in 2016, and in the summer of 2019 shares have been selling for around $1 or less.
2019 Stock Performance: Down 47%
Macy's hasn't been closing stores at quite the same pace as other department store chains. At the start of 2019, Macy's announced it would be closing only nine stores this year, and the move didn't come as a surprise: The latest closures are part of a plan to shutter 100 stores that was announced in 2016.
But this hardly means that Macy's is in great shape. Sales have essentially been flat at Macy's, according to the most recent earnings report, and investors have clearly soured on the company, with shares down nearly 50% so far in 2019.
Macy's and J.C. Penney both recently launched partnerships with online clothing reseller thredUP to sell secondhand clothing in some stores. The arrival of inexpensive used clothing in department stores could help them attract new customers, and possibly give shoppers the bargain "treasure hunt" experience they get in T.J. Maxx or Ross stores. But the initiative is also somewhat of an acknowledgement that regular full-price clothing at Macy's and J.C. Penney is either too expensive or not interesting enough for today's shoppers.
2019 RETAIL WINNERS
2019 Stock Performance: Up 59%
Target sure seems to be doing something right lately. After years when it seemed like Target had lost its trendy "Tarjhay" cachet, the retailer has bounced back big-time in 2019. Target's second-quarter earnings report was outstanding, with particularly impressive increases in same-store sales and huge growth in e-commerce, including online sales and store pickup options.
Target stock spiked roughly 20% on the day after the most recent earnings report, and shares are now up nearly 60% from the beginning of 2019. “This is as good a quarter as Target possibly could have had,” Moody’s analyst Charles O’Shea said recently on CNBC.
Target still hasn't figured out how to sell groceries well enough to truly compete with Walmart, Costco, and major supermarket chains. But as a Fortune story summed up, Target has succeeded where other department stores have struggled mightily in terms of modernizing stores, adding fresh new in-house brands, speeding up shipping for online orders, and coordinating in-store and online sales in general.
2019 Stock Performance: Up 21%
Like Target, Walmart far exceeded what analysts had estimated in its earnings report for the second quarter of 2019. E-commerce sales increased by a whopping 37% in the quarter, while same-store sales were up 2.8% — strong results compared to the 2.1% rise expected by analysts. And this comes on the heels of what was arguably Walmart's best earnings report in nearly a decade, for the first quarter of 2019.
Walmart stock surged after the most recent earnings report was released, reaching close to its 2019 high, and overall shares are up about 20% so far this year.
Walmart sells the most groceries of any retailer in the U.S., and low prices and convenience continue to drive shoppers to keep spending at its stores.
"We believe value-orientated broadline retailers Walmart and Target are better positioned to capture share as shopper trends evolve, ” Oliver Chen, senior analyst for Cowen, said recently. “Meanwhile, department store players are getting squeezed and are working to quickly adapt to changing shopper preferences as physical traffic continues to decline.”
Ironically, the retailer can also thank archnemesis Amazon partly for boosting business over the summer — because Walmart reported a big bump in sales after it launched thousands of deals to compete with Prime Day, the major online sales event created by Amazon held every July.
2019 Stock Performance: Up 20%
Retail experts anticipate that TJX, the company behind discount retailers T.J. Maxx, Marshalls, and Home Goods, will open about 125 new stores in 2019.
T.J. Maxx and its sibling retail brands have thrived in the era of Amazon despite — or perhaps because of — their decision to focus nearly exclusively on the in-store experience and ignore online sales. While you've been able to shop online at T.J. Maxx for years, and Marshalls is finally adding an online shopping option sometime this year, the appeal of shopping at TJX stores continues to be almost entirely about browsing through aisles of discount merchandise and never knowing what you'll find.
"TJX stores rapidly turn over limited quantities of goods at bargain prices. The result is a constant treasure hunt, with shoppers coming back to ferret out deals," the Wall Street Journal summed up. "Customers know if they don’t buy it today, the item might not be there tomorrow."
Sales for the company increased 5% in the second quarter of 2019, and TJX stock is up roughly 20% so far in 2019.
2019 Stock Performance: Up 28%
Dollar stores expanded especially rapidly in the U.S. starting about a decade ago, as the economy recovered slowly from recession and shoppers eagerly pursued deals. Even as the economy has rebounded and unemployment rates have neared record lows, dollar stores continue to grow and see increasing sales. Why? Among other factors, wage growth has been sluggish for many workers, so people still need low-price groceries, gifts, and household staples. Also, many shoppers have simply gotten in the habit of swinging by their local dollar store to see if the most recently-arrived bargains excite them.
Lately, no dollar store operator is hotter than Dollar General, which is expected to add nearly 1,000 new stores in 2019. Like other dollar store chains, Dollar General is thriving because the shopping experience combines the random "treasure hunt" factor similar to T.J. Maxx with dirt-cheap prices. Convenience is a factor, too: Dollar stores are everywhere these days, they often have groceries, and they're smaller and quicker to get in and out of than Walmart or a traditional supermarket.
Dollar General reports second quarter earnings on August 29. After the company reported strong results for the first quarter of 2019, including a net sales increase of 8.3%, Dollar General stock popped 6%, and Dollar General shares are up 28% overall so far in 2019.