GUEST EDITORIAL: WHY WALL STREET HATES RETAIL
Wall Street hates retail. More specifically, Wall Street hates retail that has mall exposure. It’s even worse than the low point of 2008. It also makes no sense. As I write this, Stein Mart with 293 doors is valued at $.78 cents a share. Stage Stores with 688 doors is valued at $1.01 a share. The iconic JCPenney with 864 doors is valued at $.85 cents a share. Recently analysts expected Abercrombie to have a quarterly same-store sales increase of 1.4%. They came in with an increase of 1.0% (not so bad) and the stock went down 27% on day one and another 7% the next day.
Macy’s now has a market capitulation of $6 billion and the estimated value of just the 34th Street-Herald Square real estate is at least $4 billion with a new office tower in the wings. A few quarters ago, Macy’s beat on the top line, beat on same-store sales, beat on the margins, had lower than planned inventory and guided higher for the next quarter. The day of that announcement, the stock went down 16%. A hedge fund client explained that machine trading, which is huge, has an algorithm that says if anything looks good for Amazon, the bricks retailers must be punished. The hedge fund then declared retail to be un-investable and exited the space.
So, what’s the real-world story? Business is okay, not great but certainly not bad. For the most part, retailers are making conservative projections. Most are becoming proactive with both online and buy online/pick-up in store. Most are closing underperforming locations and are becoming better merchants. The cloud of tariffs is clearly spooking investors but comp results are mostly okay. Inventories are being controlled and stores are cash flow positive. These Wall Street numbers simply have no logic, so of course, we’d rather ignore Wall Street and just do business.
However, I’m frightened that this time around, Wall Street does matter. Opinions from the factoring community are less relevant since factors care only if a store can pay their bills in the next 60 days. So, while I don’t want to focus on the dollar stock companies, they represent more than 1800 doors, which is huge. Historically, once a stock drops to the dollar neighborhood, the retailer rarely makes it. After all, suppliers in Asia are extremely knowledgeable and at some point, the credit community sees the evaluations and withdraws support, even when individual financials look proper. Then at what point do consumers see the headlines, assume their favorite store can’t compete with Amazon and stop shopping there?
Unfortunately, I don’t have a magic answer. I do know that as retailers, managers, designers, vendors, and suppliers, we absolutely need to innovate, challenge norms, take risks and depart from the status quo. We’re in a new world and making great progress. But although Wall Street does not define us, the axe is clearly above our necks.
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Fred Rosenfeld is an industry consultant; he can be reached at frosenfeld@comcast.net.
Great article and insight. Especially your last paragraph. Makes sense for brick and mortar to find the new designers that are passionately working out there creating; and carry not just the ‘big labels’ all stores have. Why not be different, unique. Work hard and find the many talents that are out there! Just have to pay attention. Carry limited editions. They’re quite special.
Wall Street? These are the people for whom long term planning is “where are we going for lunch?”. I agree their positions and outlook matter, but let’s just run our business on sound principles and they can take their algorithms and put them where they belong, i.e., in the circular file.