This week was not a great one for consumer stocks, particularly department store stocks. This could be a sign of the times and an omen that the growing popularity of online shopping will eventually put big name brick-and-mortar retail stores out of business.
Department store stocks are down
This week, a selection of department store stocks took a tumble. Nordstrom (NYSE:JWN) by 19%, Macy’s (NYSE:M) decreased by 17% and Kohl’s (NYSE:KSS) dropped by 14%. All three retailers reported earnings that came in well under industry estimates. Analysts speculate that this is due to the fact that more and more shoppers are taking their dollars online.
Ecommerce stock are up
While brick-and-mortar retailers are seeing their stock prices decrease, online shopping companies are experiencing impressive success. In April, Amazon (NASDAQ:AMZN) reported a surge in profits thanks to a 28% increase in sales. The company raked in $531 million during the first quarter and saw $29.1 billion in sales.
eBay (NASDAQ:EBAY) also saw impressive results when reporting its first quarter earnings in April. Analysts predicted that the company would post a $2.08 billion profit, but eBay exceeded expectations with profits worth $2.1 billion. After this announcement, the company’s share price increased by 5%.
Could they go the way of specialty stores?
The past few years has seen the closure of many specialty stores. Earlier this month, teen fashion retailer Aeropostale declared bankruptcy and announced its plans to close over 130 stores across the United States and over 30 stores in Canada. It is just the most recent case of bankruptcy among speciality stores, as the past five years have seen many stores go down the same road – including Borders, Quicksilver and Radioshack.
Many of these companies are losing business to major online retailers like Amazon. With services like Amazon Prime that provide one-day shipping, brick-and-mortar retailers are finding it hard to compete. Some companies like HMV have come back from the brink of extinction – but, analysts are doubtful that other brands will be as resilient.
What does this mean for the retail market?
The most immediate implication of brick-and-mortar retailers losing business to online shopping platforms is the potential loss of jobs in the retail market. For example, when Netflix (NASDAQ:NFLX) put Blockbuster out of business, thousands of employees were laid off. The same goes for when a store has to shut down because it has lost business to ecommerce sites like eBay and Amazon.
However, it would be quite a while before major department stores like Macy’s and Kohl’s suffer enough losses to warrant shutting down stores or declaring bankruptcy. They have taken a tumble due to mounting competition from online shopping sites, but they can recover if they manage to improve their own online shopping services and create a more competitive online shopping market.