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Why Big Box Retail Stocks Fell Today

By Jeremy Bowman – Feb 24, 2020 at 9:06PM

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Shares of major retailers, including Bed Bath & Beyond, Macy's, and Best Buy, sold off on news related to the spreading coronavirus outbreak.

What happened

Shares of big box chains, including Bed Bath & Beyond (BBBY -8.98%)Macy's (M -4.96%), and Best Buy (BBY -3.74%), finished lower as worries about a global coronavirus outbreak mounted on news of its expansion in multiple countries over the weekend. 

Retailers are sensitive to the macroeconomic climate to begin with, and all three of these companies face challenges with the rise of e-commerce and a shift in consumer shopping habits. The coronavirus also threatens the industry specifically as nearly all retailers are dependent on China for their supply chain. The factory shutdowns and delays that have resulted from the coronavirus are likely to have an effect on inventories at U.S. retailers over the coming months.

Today, Bed Bath & Beyond shares fell 6.7%, Macy's was down 4.8%, and Best Buy closed the day off 5.3%. By comparison, the SPDR S&P Retail ETF (XRT -4.97%), which tracks the industry, lost 3.6%, while the S&P 500 finished down 3.4%.

Three women holding shopping bags and standing in a mall

Image source: Getty Images.

So what

News about the coronavirus spreading rapidly beyond China rattled investors as reported cases in countries like Italy, South Korea, Israel, and Iran all spiked over the weekend, dashing hopes that the disease would be mostly contained within China. In Italy, events like soccer games were canceled, and officials in Israel were worried about the outbreak's effect on upcoming elections.

Retail stocks like Best Buy, Macy's, and Bed Bath & Beyond are likely falling today, because investors are more fearful of the disease's effects on manufacturing in China. Bed Bath & Beyond, for example, is trying to introduce more owned brands as part of its turnaround strategy under new CEO Mark Tritton. The company opened up a second sourcing office in Asia in 2018 as part of that initiative, which could be challenged by issues related to the coronavirus. The home goods retailer has seen sales and profits plunge in recent quarters, so delays in product shipments would only compound the problems it's already facing. 

Macy's also just announced a new turnaround strategy that includes closing 125 stores, laying off staff, and streamlining the business over the next three years. The company sources the majority of its merchandise from Asia, and had previously warned that tariffs on China were a risk factor that could affect its financial results. Therefore, manufacturing slowdowns related to the coronavirus could also affect the company's bottom line. 

Like Macy's, Best Buy was also affected by Chinese tariffs on products, including televisions, smart watches, and other electronics. Its CEO has said that 60% of its cost of goods sold goes to China, which includes its private-label brands. Since China is the world's leading electronics manufacturer, any delays are likely to affect the company's supply chain and operations.

Now what

Macy's and Bed Bath & Beyond shares have tumbled in recent years as both companies have struggled amid the "retail apocalypse." Best Buy, on the other hand, has seen its stock soar as the company executed a successful turnaround under former CEO Hubert Joly. However, even the electronics retailer's growth has been sluggish lately as revenue growth is expected to be nearly flat for the year. 

Right now, it's unclear how much the coronavirus will affect these retailers, but all three of these stocks, especially Macy's and Bed Bath & Beyond, can ill afford unexpected challenges. They need all the help they can get to turn around their businesses.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Best Buy Co., Inc. Stock Quote
Best Buy Co., Inc.
BBY
$64.92 (-3.74%) $-2.52
Macy's, Inc. Stock Quote
Macy's, Inc.
M
$15.71 (-4.96%) $0.82
Bed Bath & Beyond Inc. Stock Quote
Bed Bath & Beyond Inc.
BBBY
$5.88 (-8.98%) $0.58
SPDR Series Trust - SPDR S&P Retail ETF Stock Quote
SPDR Series Trust - SPDR S&P Retail ETF
XRT
$57.11 (-4.97%) $-2.99

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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