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Competition in retail has become a zero-sum game: Morning Brief

Myles Udland
Markets Reporter

Thursday, November 21, 2019

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In retail, you're either a winner or a loser

Big winners, big losers, and no middle ground.

The current economic and financial market moment is defined by a few major themes.

But perhaps none is more of-the-moment than the stark divide between the companies, industries, workers, and investors that are doing well and those that are struggling. The middle ground has been steadily whittled away. There are winners, losers, and little else in-between.

And few industries sum up this theme more cleanly than the retail business.

On Wednesday, Target (TGT) released its third quarter earnings report and showed that its best-in-class run continues. Sales grew faster than expected, earnings came in above analyst expectations, and the company raised its profit outlook for this year.

Shares of Target gained 14% after this report to close at an all-time high. The stock has now gained 90% so far this year.

And the company's biggest success is in the area perhaps most left-for-dead in the retail world: clothing. Target's results in the third quarter were bolstered by a stellar 10% increase in apparel sales, which now account for more than one-fifth of the company's annual sales. Clothing is now the company's third-largest category behind food and beauty.

On the flip side, shares of Urban Outfitters (URBN) dropped 15% on Wednesday after the company reported disappointing quarterly results after Tuesday's close. In sympathy, shares of apparel peers including The Gap (GPS), American Eagle (AEO), and Abercrombie & Fitch (ANF) all fell on Wednesday.

Target's huge quarter in its clothing aisles also follows lackluster results from Kohl's (KSS) this week and J.C. Penney's (JCPhorrendous quarter posted last week.

The results also come ahead of expected results out Thursday from Nordstrom (JWN), Macy's (M), and the Gap; same-store sales are forecast to fall 1%, 0.3%, and 3.5% at each company, respectively. (Shares of Nordstrom and The Gap were also caught up in the apparel selloff on Wednesday, dropping 4% and 3% ahead of each company’s quarterly report.)

Target is hitting the bullseye with apparel. (Getty)

The rise of Amazon (AMZN), online shopping's ubiquity, consumer tastes, and the advent of fast fashion are also part of the current retail industry's struggles. And investors have started to line up their bets against the space. Data from S3 Partners cited by The Financial Times on Wednesday indicates more than $500 million in paper profits were reaped by short-sellers earlier this week for their bets against the retail sector. And The Journal reported Tuesday that Carl Icahn has made big bets on the demise of shopping malls.

But the brick-and-mortar success enjoyed by Target, TJX Companies (TJX), and Walmart (WMT) also aren't being ignored — shares of all three companies are up better than the S&P 500 so far this year. And lest we forget the success enjoyed this year by other consumer-centric plays like Nike (NKE), Lululemon (LULU), Starbucks (SBUX), and Chipotle (CMG).

After all, consumer spending has continually been cited by investors as underpinning expectations that the economic expansion will continue in 2020. It's just that the companies winning in this environment win big while the the losers lose big.

Writing in The Wall Street Journal on Wednesday, Justin Lahart said the retail business has been "reduced to a near zero-sum game of winners and losers, driven by companies’ ability to grab and hold onto market share." And it's a theme that goes beyond just retail.

Whether we look at online advertising, social networking, ride-sharing, retail, worker incomes, or growth investing versus value, versions of this zero-sum, winners win and losers lose, theme appear across markets and the economy. A defining story of the decade.

By Myles Udland, reporter and co-anchor of The Final Round. Follow him @MylesUdland

What to watch today


  • 8:30 a.m. ET: Philadelphia Fed Business Outlook, November (6.6 expected, 5.6 in October)

  • 8:30 a.m. ET: Initial Jobless Claims, week ended November 16 (219,000 expected, 225,000 prior); Continuing Claims, week ended November 9 (1.683 million expected, 1.683 million prior)

  • 9:45 a.m. ET: Bloomberg Consumer Comfort, week ended November 17 (58 prior); Bloomberg Economic Expectations, November (49.0 prior)

  • 10 a.m. ET: Leading Index, October (-0.2% expected, -0.1% in September)

  • 10 a.m. ET: Existing Home Sales, October (5.50 million expected, 5.38 million in September); Existing Home Sales month-on-month, October (2.0% expected, -2.2% in September)



  • 8 a.m. ET: Macy’s (M) is expected to report an adjusted loss of 1 cent per share on $5.30 billion in revenue

  • Other notable reports: BJ’s Wholesale Club (BJ), Jack in the Box (JACK)


  • 4 p.m. ET: Ross Stores (ROST) is expected to report adjusted earnings of 97 cents per share on $3.77 billion in revenue

  • 4:05 p.m. ET: Nordstrom (JWN) is expected to report adjusted earnings of 63 cents per share on $3.52 billion in revenue

  • 4:15 p.m. ET: Gap (GPS) is expected to report adjusted earnings of 51 cents per share on $3.97 billion in revenue

Read more

From Yahoo Finance

  • Watch Dell Chairman and CEO Michael Dell speak at the Economic Club of New York at noon ET today.

  • This week’s Influencers with Andy Serwer features Darren Walker, president of the Ford Foundation. Tune into Yahoo Finance at 6 p.m. ET to watch the interview.

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