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Home / Business / JC Penney fades, Walmart thrives. Here's a look at retail today

JC Penney fades, Walmart thrives. Here's a look at retail today



A Nordstrom business in Irvine, California.

Scott Mlyn | CNBC

Clothes stacked on tables. Release signs hang on the ceiling. Promotions in abundance.

Have you been to a department store lately? It might look like this.

The same applies to retail shares. There is a growing gap between the strong and the weak – the retailers who face camp construction before Christmas and those who have a better grip on what consumers are looking for.

Nordstrom, Macy's and JC Penney's shares fell more than 40% this year. Kohl's shares have fallen by more than 30%.

Meanwhile, Walmart has increased by 20%. Target has increased by 33%. The S & P 500 Retail ETF (XRT) has risen by about 3% this year.

Overall, retail sales in this quarter are not looking good compared to last year. For the industry, a decline is forecast. For many companies, the need to discount products to bring out-of-season goods on the shelves will reduce profitability. In particular, department store chains are still struggling to increase sales, while Walmart and Target have found growth pockets in the food sector through their e-commerce business and their own brands.

Walmart and Target were able to compete with Amazon by giving their customers the ability to buy items online and pick them up in stores the same day. With this approach, they are ahead of many other retailers. It boosts digital sales and branch traffic. Walmart's e-commerce revenue grew 37% in the last quarter. Target's digital sales increased 42%.

Overall, retail sales grew 1.7% in the first quarter. This emerges from Retail Metrics, which oversees the financial reports of some 150 retailers. For the second and current quarter, a profit decline of 4.2% is forecast, said Ken Perkins, president and founder of the trade research firm. In this case, this would be the largest quarterly decline in retail revenues since a drop of 4.5% in the first quarter of 2014.

"The industry is screaming for innovation," said Craig Johnson, president of retail consulting firm Customer Growth Partners. As "the world's amazons" gain market share – which means you can find almost anything online cheaper online, "said Johnson," some retailers' margins will be put under pressure until people [working there] come up with new products. "

Apparel spending is also expected to decline this year and next, with consumers spending less and less on clothing. According to the NPD Group's Consumer Tracking Service, total apparel sales in the US for the twelve months ended May 2019 were $ 216.4 billion. The company expects total spending on apparel to fall by 1% to 3% this year. And a recovery is not expected before 2021, said NPD.

If most of your business is devoted to selling clothes, you might be in trouble. Department stores are much more dependent on apparel than Walmart and Target, which have large electronics and food companies.

The fashion choices that consumers are turning to for clothing are also drawing the attention of department store chains. These include the Stitch Fix online service, rental plans such as Rent the Runway, and trendy startups The Real Real and Revolve. More and more clothing issues are also online. RBC Capital Markets estimates that around 30% of clothing in the US is bought online today, but by 2023 it will be 40%.

Meanwhile, the coming-off season is a good barometer for how companies will hold their own during the important holiday season – it does not look like it will buoy many, especially department stores. The forecast is the sale of apparel and accessories in retail stores in the US over the next 90 days, foresees a decline of 0.9% in August and September compared to the previous year and a decline of 0.5% in October. [19659002] "Many department store and specialty retail stocks with heavy exposure to the US such as Macy's, Kohl's, Nordstrom … look auspicious on [price-to-earnings] base," said UBS analyst Jay Sole.

"However, we do not see any purchase opportunities in this name, these stocks are likely to improve revenue growth rates to catalyze price gains, and we believe this scenario is unlikely to be effective for the next three months."

All this could end A recipe for disaster for some retailers, more so for those who have already made an effort to give the buyers a reason to visit them. With brands like Nike and Coach now investing more in their own brick-and-mortar stores and websites, an intermediary such as a department store operator must sell fewer sports bras and handbags.

Faced with these challenges, Penney has hired consultants to deal with debt and "improve the capital structure [its]". (The company said it had not hired companies preparing for legal restructuring or bankruptcy, as some speculated.)

High-end department store operator Barney is preparing for a bankruptcy that could come already this month, friends told CNBC about it. Hudson's Bay Company, the owner of Saks, is considering becoming private after its shares fell nearly 50% this year to June.

Nordstrom, known in the industry for greater merchandising and customer service compared to its competitors, is even coming under pressure with the others. The company's shares trade at $ 20 per share below the two-year decline in the $ 50 per share offer.

Wall Street has many reasons to stay away from the market.


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