Several experts estimate that as many as 130 million shoppers will visit stores or online retail sites on Black Friday. The number is deceiving. The National Retail Federation expects the holiday sales of its members to be up 2.4%. That is nothing to brag about given how horrible the 2008-2009 holiday shopping periods were. Fourth quarter retail sales often represent most of the profits for many chains.
A rough retail environment always means higher discounts, and special services that cost companies a great deal of money. Major retailers such as Wal-Mart began slashing prices last month. The company is so large that its decisions often set the tenor for the sector. Another important development is the rise of online powerhouses like Amazon, eBay, the search engines, and sites like Groupon on what was once a solely bricks-and-motor business.
Retail is an outstanding example of an industry where the rich are getting much richer and the poor are disappearing.This has happened in the past. There was a time when JC Penny and K-Mart were dominant retailers. Wal-Mart’s huge success is only a few decades old. The companies we’ve highlighted are being muscled out of their market share by the most powerful players in their industries. History shows that this cycle is not unusual.
This 24/7 Wall Street analysis has identified companies the fortunes of which we think will be very badly damaged this holiday season.
1. Sears Holding Corporation (SHLD)
Retail Segment: General Retail
Annual Revenue: $44 billion
Performance: YTD stock down more than 20%, October retail sales of the Sears unit down 8.2%.
Major Competitors / Reasons For Problems: The Sears division competes with two larger operations – Target ($65 billion in sales) and Wal-Mart ($400 billion in sales). Wall Street has voted in favor of these two companies and their holiday prospects by pushing their share prices higher. Starting Black Friday, Target and Wal-Mart will ramp up their efforts with sharp discounts and tools like free shipping.
2. Hot Topic Inc. (HOTT)
Retail Segment: Mall specialty for teens, also operates Torrid stores, which caters to plus-sized teen girls.
Annual Revenue: $736 million
Performance: Stock down 10% YTD, October same-store sales down 8.5%.
Major Competitors / Reasons For Problems: Hot Topic will close 40-50 stores next year. The company is up against Abercrombie & Fitch, which has had a surge in sales recently and now leads the category. Its other major competitor – Urban Outfitters – is one of the hottest retailers in the country.
3. Kohl’s Corp. (KSS)
Retail Segment: General Department Store
Annual Revenue: $17.1 Billion
Performance: Stock performance is flat YTD, October Retail Sales down 1%
Major Competitors / Reasons for Problems: Kohl’s has done relatively well recently, and just posted good earnings. Kohl’s now faces tremendous competition, particularly from Target, which is much larger and can afford to offer large discounts. Target also has a better set of locations. The overall department store segment is crowded, with companies like Macy’s, Dillard’s and Nordstrom.
4. Aeropostale, Inc. (ARO)
Retail Segment: female teens
Annual Revenue: $2.2 billion
Performance: Shares have done relatively well this year, October same-store sales down 2%.
Major Competitors / Reasons for Problems: Another victim of Abercrombie & Fitch (ANF stock is up 35% YTD). The company is also caught between major retailers including The Gap and several niche store chains such as Pacific Sunware of California.
5. Big Lots Inc. (BIG)
Retail Segment: Broad-line closeout retailer
Annual Revenue: $4.7 billion
Performance: Stock flat YTD, quarterly same-store sales up 0.7%
Major Competitors / Reasons for Problems: Wal-Mart’s Sam’s Club and Costco are not closeout retailers. However, their models are based on selling a very large selection of food, clothing, beauty aids, furniture, bed and bath products, and consumer electronics at extremely low prices. Chief Executive Officer Steve Fishman says “our customers were very selective.” Based on their recent performance, it seems they were much too selective.
6. American Eagle Outfitters, Inc. (AEO)
Retail Segment: Clothing retailer targeting young adults
Annual Revenue: $2.9 billion
Performance: Shares down slightly YTD, October same-store sales down 5%
Major Competitors / Reasons for Problems: The retail segment that caters to older teens and younger adults who want to buy hip sweaters, shirts, outerwear and accessories is probably the most crowded in the industry. The company suffers from tremendous resurgence of Abercrombie and the huge footprint of The Gap.
7. Rite Aid Corp. (RAD)
Annual Revenue: $25 billion
Performance: Stock down 40% to $0.90, October same-store sales down 1.7%.
Major Competitors / Reasons for Problems: Rite Aid is up against Walgreen’s (sales $68 billion) and CVS (sales $98 billion) – two companies with much larger sales, better store locations and stronger balance sheets. Rite Aid has already been left for dead and this holiday season could deal the coup de grace.
Also Read: Retail Stock Prices on Fire, Home Builders Burning Down
8. Lowe’s Companies Inc. (LOW)
Retail Segment: Home Improvement
Annual Revenue: $47 billion
Performance: Lowe’s Stock is down 5% YTD, and fourth-quarter same-store sales are expected to be flat or increase no more than 2%.
Major Competitors / Reasons for Problems: The most damaging problem which Lowe’s faces is the housing market. It is also up against a larger competitor Home Depot. There is a more recent development, which is that Wal-Mart, Target and Costco have aggressively entered the business of selling appliances, cleaning products and home décor.
9. Office Depot, Inc. (ODP)
Retail Segment: Office Supply
Annual Revenue: $12 billion
Performance: Stock is down 30% YTD, October same-store sales down 1% for North American operations.
Major Competitors / Reasons for Problems: Office Depot is the No. 3 company in what is essentially a 3-company industry. The stock market has warmed to the good performance of OfficeMax (OMX is up 40% YTD). Office Depot is up against industry giant Staples, which has annual sales of $24 billion. A drop in small business spending has already hurt this industry. A weak fourth quarter would significantly compound that problem for OfficeMax.
-Douglas A. McIntyre
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