Retail Stocks Sink, With Ominous Signs in the Data

First it was the banks, and now it is the retail sector. The group may change, but the result is the same: Wall Street is hammering the big names over fears of slowing consumer spending.

On Thursday, headed into the final hours of the session, retail names were getting hammered on the heels of Kohl’s guidance, which disappointed the Street and which came alongside other muted retail sales reports.

Kohl’s said that the fourth quarter saw disappointing sales in the holiday season, and discounting led to lower margins. Part of that disappointment came as winter was held in abeyance, and patrons spent less on winter clothing. But with same store sales up a paltry 0.4 percent, and far below the 1.2 percent gains the Street had expected, could it be possible that something larger is afoot? Ralph Lauren also showed poor same store results, with declines of 7 percent, considerably worse than the 2.7 percent held by consensus. There’s little doubt that markdowns and inventory clearance will be the focus of investors (not to mention management) in the months ahead. Cato took down its guidance markedly on stagnant buying. Kohl’s said that earnings for the year were $3.95 to $4, leagues below the $4.40 to $4.60 previously anticipated.

The sea of red across retailers almost regardless of focus – be it discount or high-end – likely means that Wall Street thinks weather may just be a smokescreen. The move to clear inventories aggressively harkens a struggle to recover from a quarter where the holiday laden months of November and December can account for as much as 30 percent of annual sales (or even more).

The macro concerns linger, too, with oil down, and the strong dollar hitting wallets of tourists who might otherwise take up some retail slack. There’s also the possibility that the stock market plunges worldwide have slammed the door on the “wealth effect,” which means that people peeking at their portfolios suddenly do not want to go out and spend money.

There may be something else at play, too. As PYMNTS and MPD have found, there has been, and likely continues to be, a significant underreporting of online sales, to the tune of as much as $100 billion, cumulatively. That dovetails well with some of the fallout being seen in brick-and-mortar stores. By severely underreporting the impact of online sales on brick-and-mortar locations, it may be the case that the impact on same store sales may be camouflaged, at least for now. But if inventory continues to sit on store shelves even after the snow has come and gone, and extends beyond fleece and scarves, then a notable change is in the offing.

Which brings us to online conversions. If online retail sales are being underreported (in that they are being classified as online and not in-store sales), then merchants had better pay attention to the vagaries of their online processes. The Q4 2015 Checkout Conversion Index, released last month, shows through an analysis of more than 650 U.S.-based eCommerce sites across 14 merchant categories shows that those businesses may have lost a total of $147 billion as a result of transactions that consumers abandoned before completion due to friction in the checkout experience.

And shopping card abandonment is believed to be fairly widespread, with possibly as much as 42 percent of sales being cast aside. While winter may or may not be coming, online transactions at the expense of bricks and mortar seems an inevitable trend, and retailers had better gird for the transition, with foot traffic to be little more than the pitter-patter of a few feet at the mercy of a clicking mouse.