There seems to be no end in sight to the retail apocalypse. Industry watchers had thought that the phenomenon had peaked last year, with stores closing left, right and center. But several more stores are likely to down shutters over the next few years, giving in to the uninterrupted march of online retailers.
A new report from investment firm UBS UBS reveals that by 2026, nearly 75,000 stores will shut down. At that point, online sales are expected to account for 25% of all retail sales, per UBS. Currently, they make up around 16% of total sales.
So does the rise of Amazon AMZN and its ilk spell the end for the traditional brick-and-mortar retailers? Several major brands may be feeling the pinch, but many others are coping with innovation and a wider online presence. This is why it makes sense to pick up select retail stocks which are poised to flourish even in the middle of a retail apocalypse.
Online Shift Spells Doom for Brick and Mortar
Several retailers have already announced that they will shutter thousands of stores this year in order to keep pace with changing buyer behavior. For instance, Payless ShoeSource is shutting all of its 2,100 stores in the United States while Gymboree is closing 800 stores.
Additionally, Sears is shuttering 80 locations after closing nearly 1,300 Sears and Kmart stores since 2013. The likes of Gap GPS have also stated that several stores are likely to close in the near future.
And the primarily reason for these closures is the increasing shift to online shopping. The average U.S. household’s online spend clocking in at $5,200 last year. This is a near 50% jump compared with the figure recorded five years earlier.
Store Closures Likely to Continue
At least 15,000 stores had closed since 2017, per data from UBS. The major sufferers of this trend include Radio Shack, Toys R Us and Mattress Firm and GNC, which have shuttered 1,470, 735 and 700 stores, respectively.
Happily enough, in-store sales rose in 2018, primarily fueled by tax cuts. But UBS thinks those gains will probably be reversed in 2019. With the pace of store productivity improvement likely to fall, store closures may accelerate in the current year, according to UBS analysts.
Flexibility, Innovation Key to Survival
Despite the spate of store closures, some online companies like Casper and Wayfair are opting to open at physical locations. However, these stores will likely function more as showrooms rather than stores with significant inventories.
And this is likely to be the trend for most retailers. Streamlined stores, with lower inventory levels, seem to be the new watchword for the industry. In case buyers want more variety, they’ll have to shop online.
The likes of Target TGT and Ikea are reducing stores sizes in order to attract urban shoppers for whom time is at a premium. Early in April, Sears said it will launch a few Sears Home and Life stores, which are only 10% the size of their traditional retail formats.
Smaller store size and lower inventory levels are just some of the strategies being adopted by embattled brick-and-mortar retailers. Some are choosing to reposition themselves in buyers’ minds, others are changing store formats to appeal to new shoppers.
And many traditional retailers are looking for a sweet spot between online and offline models, choosing even to tie up with behemoths like Amazon. This is why it makes sense to invest in retail stocks that have what it takes to survive a trying time for the industry. However, picking winning stocks may be difficult.
This is where our VGM Score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM Score.
We have narrowed down our search to the following stocks, each of which has a Zacks Rank #1 (Strong Buy) and VGM Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.
Boot Barn Holdings, Inc. BOOT has tremendous focus on innovation which enhances its competitive moat in a hostile business environment. Its endless aisle concept, which allows customers to select boots more easily through in-store touchscreens, is one example of its endeavors.
Bucking the trend of store closings, Boot Barn actually opened two new stores in the last quarter, taking its store count to 234. It still aims to double its store count in order to widen its domestic presence, primarily by increasing new store counts 10% every year.
Boot Barn Holdings’ projected growth rate for the current year is 13.9%. The Zacks Consensus Estimate for the current year has improved by 0.3% over the last 30 days. The stock has gained 83.4% year to date.
Abercrombie & Fitch Co. ANF is making significant progress in expanding digital and omni-channel capabilities. Digital channel sales surged 36% in the fiscal fourth quarter, while reaching a key milestone of crossing the $1 billion mark in annual sales in fiscal 2018.
Abercrombie & Fitch’s projected growth rate for the current year is 20.9%. The Zacks Consensus Estimate for the current year has improved by 40.4% over the last 60 days. The stock has gained 34.2% year to date.
America's Car-Mart, Inc. CRMT is a strong franchise and could even be able to hold out against a full-blown recession, per some market watchers. This is because it is likely to grow using indigenous resources.
It takes a disciplined approach while growing its dealership. Recently, it rolled out an online credit application and a fresh online inventory catalog.
America's Car-Mart’s projected growth rate for the current year is 78.5%. The Zacks Consensus Estimate for the current year has improved by 11.2% over the last 30 days. The stock has gained 33.3% year to date.
Foot Locker FL is trying to move beyond its popular perception as a sneaker store, choosing instead to be associated with “youth culture empowerment.” The company invested in four startups in January, Goat, kids brands Rockets of Awesomness and Super Heroic and sneaker design academy Pensole.
Foot Locker has also ventured into Asia and tried to localize its U.S. stores. It is rolling out a new loyalty reward program. Foot Locker’s projected growth rate for the current year is 10.4%. The stock has gained 18.5% year to date.
Kohl's Corporation’s KSS partnership with Amazon has been a successful one, per a study by Earnest Research. The pilot program allows buyers to return purchases made from Amazon at a Kohl’s store free of charge.
While some industry insiders have been critical of the move, others have praised Kohl’s for its spirit of innovation. The criticism stems from the fact that Amazon is perceived to be the major cause for most of traditional retails’ current woes.
Kohl's’ projected growth rate for the current year is 7.6%. The Zacks Consensus Estimate for the current year has improved by 0.2% over the last 30 days. The stock has gained 5.3% year to date.
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America's Car-Mart, Inc. (CRMT) : Free Stock Analysis Report
Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
UBS Group AG (UBS) : Free Stock Analysis Report
The Gap, Inc. (GPS) : Free Stock Analysis Report
Abercrombie & Fitch Company (ANF) : Free Stock Analysis Report
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