In spite of Wall Street being in a jubilant mode since November, the department store stocks have not been able to perform well. Week after week, they are plunging with many leading department stores stocks at or near their multiyear lows. Yesterday, Nike shares faced their worst one-day performance in the last five years as the company came out with disappointing quarterly results and the future guidance was not to the investors liking.
Similarly, Sears shares were battered badly losing almost 13% in a day after the company’s filing with Security and Exchange Commission revealed that the company is finding it hard to continue. The industry leader Macy’s is another victim whose stock is trading below $28, its five-year low. J.C. Penney is also in doldrums with its shares seeing the lows of the 1980s and trading below $6.
Some others like Nordstrom and Kohl’s are still managing to remain above their 52-week lows, but since December they have also lost nearly a third of their value.
The department store sector is right now in the middle of a secular downturn, fighting a fierce battle with the online store sales. The steep decline in the sales and the share prices have resulted in investors losing their faith in the sector completely as of now. The companies are trying hard to revive themselves with several of them devising totally new strategies to reinvent themselves and compete with e-commerce.
For a decade lasting from 2005 to 2015, the sales in the U.S. department store fell by around 30%, but the rate of decline in last one and a half year is too much and the companies are finding it hard to cope up.
It is not that all departmental stores will give their fight with the rising e-commerce and the speedy growth of off-price merchants. It’s only those that are reluctant to change and have weaker links will vanish. Department stores still generate loads of revenue with the top five chains in the US – Macy’s, J.C. Penney, Kohl’s, Sears, and Nordstrom accounting for nearly $80 billion in revenue last year. Thus, to believe that the complete sector is toxic is not the right conclusion. We might see a wave of bankruptcies that will be followed by downsizing or the liquidation of assets and some mergers, which will help in consolidating the sector and boosting profits for those who will still remain in the game.