It has been the accepted wisdom for a while that it is only a question of time before Amazon mops up the traditional brick-and-mortar retailer’s every last sales dollar. I am obviously exaggerating here, but we have been seeing the ‘Amazon effect’ in a host of retail sub-industries in recent years.
Many have been thinking that what happened to Barnes & Noble and other booksellers is the fate of most traditional retailers; we certainly have seen the once-mighty operators like Macy’s (M – Free Report) in the department store space and Wal-Mart (WMT – Free Report) in the big-box discounter industry humbled in recent years. You can see this in the stock market performance of these players – Amazon shares are up +37.7% in the past year while Macy’s is down -26.7% in that same time period.
Wal-Mart shares have done better – they are up +13% over the past year – largely because market participants have come around lately to see its digital strategy as credible. The retail giant has not only been steadily making investments in its online operations, but also strengthening its legacy through investments in employees and cleaner and more organized floor space. This has started showing up in Wal-Mart’s earnings results, as we saw in the company’s strong Q1 earnings report. But it’s safe to say that Wal-Mart still has a long way to go before it can effectively fend off the Amazon challenge.
One could argue that what has started working for Wal-Mart should work for Macy’s as well. But their brick-and-mortar commonality aside, they are fundamentally different businesses. Wal-Mart may bring in foot traffic through its enormous groceries business, but there is increasingly less reason for consumers to visit Macy’s, other department stores or even the malls. We are seeing this issue with a host of other mall-based retailers as well, which is giving rise to the ‘death of the mall’ narrative. We should be mindful, however, that as weak as the mall-based retail space has been lately, some of these mall-based players have been able to make it work.
Strong results from The Children’s Place (PLCE – Free Report) and Gap (GPS – Free Report) prove this point. But for every Children’s Place winner, you have a host of mall-based Foot Locker (FL – Free Report) losers that are forced to blame everything – from delayed tax refunds and Easter Day placements to the weather – but their inability to respond to changing consumer behavior. On a related note, the Foot Locker disappointment may have read-throughs for Nike (NKE – Free Report) and Under Armour (UAA – Free Report) as well.
Retail Sector Scorecard
As of Friday, May 19th, we now have Q1 results from 33 of the 42 retailers in the S&P 500 index. Total earnings for these 33 retailers are up +1.5% from the same period last year on +2.9% higher revenues, with 63.6% beating EPS estimates and 54.5% beating revenue estimates.
