The retail sector was at a turning point in 2018.
The rise of Amazon.com, Inc. (NASDAQ: AMZN) has dominated the narrative for years, but 2018 proved to be a winning year for the segment.
Retail was 2018's best-performing sector, up 3.6 percent, and one of only two sectors that were positive for the year.
Tough Year For Sears, Pier 1, JCPenney
Sears Holding Corp (OTC: SHLDQ), once the world’s largest retailer, could liquidate completely if Chairman Edward Lampert's bid for the company's assets is unsuccessful.
The company is the worst performing retail stock of 2018, with shares down nearly 95 percent year-to-date.
Pier 1 Imports Inc (NYSE: PIR) announced it was exploring strategic alternatives after reporting a big third-quarter earnings and sales miss in mid-December that also saw its CEO step down.
It was a difficult year for legacy department stores, with J C Penney Company Inc (NYSE: JCP) now a penny stock and coming in as the fourth worst-performing retail stock, with shares down over 69 percent year-to-date.
From Biggest Loser To Biggest Winner
Fossil Group Inc (NASDAQ: FOSL) is 2018's No. 2 best-performing retail stock, a big turnaround from 2017, when it was one of the worst-performing stocks. Facing competition from Apple Inc (NASDAQ: APPL)’s smartwatch, Fossil addressed the technology shift in watchmaking with its own offerings.
What To Watch For In 2019
Uncertainty persists heading in 2019: higher interest rates, tariffs, higher inventories and tougher comparisons mean there is a lack of clarity heading into the new year.
"The first half of 2019 overall for retail, many [companies] had double digit sales increases so its tough to comp-the-comp and when guidance comes out over the next few weeks I think the earnings increases may be less than they were this year," Telsey Advisors CEO Dana Telsey told CNBC Wednesday.
"There are some tailwinds, but if these tariffs come through companies are going to pass through some of these price increases in the form of higher prices to consumers."
The push toward direct-to-consumer sales will continue to be an increased focus for major brands Nike Inc (NYSE: NKE), Adidas AG (ADR) (OTC: ADDYY) and Under Armour Inc (NYSE: UAA) and will put additional pressure on undifferentiated retail and wholesale partners Foot Locker, Inc. (NASDAQ: FL) and Dicks Sporting Goods Inc (NYSE: DKS) to create a unique retail experience and grow private label brands.
An omnichannel presence has become essential for most companies, but Telsey fears the peak margin benefit from the direct-to-consumer shift has come and gone.
"Overall it takes 100 basis points or more in order to pay for free shipping and these omnichannel investments. You need to have both, and in the new world it's a lower-margin business than it was in the past," she added.
The resale economy is also a growing trend to watch in retail, with major leaders TheRealReal and Detroit's own StockX raising additional venture capital in 2018.
Apparel resale will be bigger than fast fashion within 10 years, according to Fashionista.
The luxury resale market alone is expected to have reached billion in sales in 2018, according to Business of Fashion.
Top Stock Winners
- Centric Brands
- Fossil Group
- Natural Grocers by Vitamins Cottage Inc (NYSE: NGVC)
- Carvana Co (NYSE: CVNA)
- Herbalife Nutrition Ltd (NYSE: HLF)
- Tripadvisor Inc (NASDAQ: TRIP)
- America’s Car-Mart, Inc. (NASDAQ: CRMT)
- Advance Auto Parts, Inc. (NYSE: AAP)
Top Stock Losers
- Sears Holdings Corp
- Pier 1 Imports Inc
- Overstock.com Inc (NASDAQ: OSTK)
- J C Penney Company Inc
- Lumber Liquidators Holdings Inc (NYSE: LL)
- Rite Aid Corporation (NYSE: RAD)
- GMS Inc (NYSE: GMS)
- L Brands Inc (NYSE: LB)
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Photo courtesy of Fossil Group.
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