Brick-and-mortar retailers just can’t get a break…
Nordstrom and Gap are currently the worst performing stocks on the S&P 500. This is a trend that’s very likely to continue: the same trend that gutted Sears. If brick-and-mortar retailers aren’t able to learn and to pivot quickly, they may soon see similar mass store closures. But it isn’t an indication that the economy is down. In fact, it’s the opposite.
Let’s take a look a the bigger implications.
Nordstrom and Gap Down by 30% — Others Follow
Nordstrom and Gap are currently down by over 30%, with other major brick-and-mortar brands down by 20%: Kohl’s, Macy’s, and Foot Locker. With the stock market as a whole rallying, these are very concerning numbers.
But it’s easy to see where it’s going. Amazon’s stock is up by 25%.
As consumers become more comfortable purchasing online — and the process of purchasing online becomes much easier — traditional brick-and-mortar retailers are finding it difficult to compete.
Nordstrom and Gap are both companies that find it difficult to compete within the new online space. Clothing, in particular, is easy to acquire online and often at much cheaper prices. Millennials tend to be more cost-conscious with their purchasing, and are increasingly purchasing less expensive, “fast fashion” clothing rather than well-known labels. In fact, in general, millennials have started purchasing generic, private label products rather than well-known brands.
And there’s something that Nordstrom, Gap, Kohl’s, Macy’s, and Foot Locker all have startlingly in common: they’re all traditionally “mall” stores. Americans are now going to malls less often. They no longer go to malls to browse items, and they no longer go on lengthy “shopping trips.” Instead, they do all of their browsing online.
All of this means that consumer purchasing has been reduced significantly in Nordstrom, Gap, and other similar stores.
Not All Brick-and-Mortar Retailers Are Suffering
As mentioned, the stocks of “mall stores” are getting hit the hardest. It’s not something that’s universal to all brick-and-mortar stores. Walmart, Target, Costco, and Home Depot are among retailers that are doing exceptionally well. This is despite the fact that Walmart had previously been losing traction against the weight of Amazon.
Walmart and Target have both embraced online ordering. Walmart has its own online grocery service, while Target now delivers groceries through Shipt. Costco (and Sam’s Club) specifically target an audience (business owners) who frequently need to make immediate bulk purchases. And Home Depot specializes in tools: things that people often need immediately.
Retailers who specialize in immediate need products and who have branched out into online sales are thriving. Retail purchasing is still very healthy, it’s just the way that people are purchasing items that has changed.
What’s in the Future for Nordstrom and the Gap?
Nordstrom has already begun closing stores. In fact, 2019 will see Nordstrom close more stores than it has in the past three years combined. There simply isn’t enough demand to support this volume of stores. But that doesn’t mean that it’s closing up shop.
In fact, Nordstrom is actually closing even profitable stores, trimming down and narrowing its focus. Nordstrom is also trying to lean hard into online sales, with online sales now accounting for about 30% of its business. If, like Walmart and Target, it can continue to grow as an online retailer, it may be able to thrive.
Meanwhile, GAP is going to be closing 230 stores this year. The news is more difficult for Gap than it is for Nordstrom, as Nordstrom dealt in high end fashion. Gap has far more competition from outside sources, as it was previously seen as an affordable brand, as well as a brand for kids and teens.
If you believe that Nordstrom is going to rally, then Nordstrom stock could be a buy — but very few people are optimistic that GAP is going to be able to turn itself around. What is not arguable is the fact that consumers are changing the way that they purchase items.
Apart from immediate demand items, most customers now prefer to make their purchases online. This is even true for things like groceries, and even true if they’re going to be picking up the items in person.