What happened

Retail stocks were plunging again Monday as the broad market fell sharply on concerns about the expanding coronavirus outbreak. Schools are closing in a number of states across the country, and restaurants are being told to close with the exception of takeout and delivery in New York, New Jersey, Connecticut, and other cities and states. A number of retailers responded to the outbreak by announcing temporary store closings or cut hours.

Additionally, an emergency rate cut by the Federal Reserve and a promise of $700 billion in quantitative easing failed to assuage investors. In fact, it may have signaled the severity of the crisis we're entering. 

Consumer discretionary stocks are getting hit broadly as more Americans are being forced to stay at home. As of 2:32 p.m. EDT yesterday, among the big losers in retail were Under Armour (NYSE:UA) (NYSE:UAA), which was down 10.3%; Kohl's (NYSE:KSS), off 15.8%; Gap (NYSE:GPS), which had plunged 26.3%; Best Buy (NYSE:BBY), down 7%; and Macy's (NYSE:M), which was off 14%. At the same time, the S&P 500 was down 8.5%.

A stock chart arrow going down in front of a board showing numbers.

Image source: Getty Images.

So what

Investors continue to flee struggling retailers and the consumer discretionary sector more generally as the coronavirus intensifies. Based on the growth of the cases in the U.S. so far, the country is on a very similar trajectory to Italy and the other European countries that now make up the epicenter of the pandemic. Like other countries have already done, U.S. retailers began to close stores or restrict hours.

That could mean several weeks or even months of a near-shutdown, which would translate into severe financial losses for brick-and-mortar retailers.

Under Armour has already announced last night that it would close all 188 of its company-owned stores in North America through March 28. The move follows a similar one by rival Nike, and Under Armour said all employees would receive pay while stores are closed. 

Kohl's, which is a key customer for Under Armour, said it would limit store hours from 11 a.m. to 7 p.m. until further notice. The company had also previously announced that it would reschedule its Investor Day conference that had been set for yesterday.  

Gap, which also owns stores in Europe, said last night that it would reduce store hours in North America, an announcement that came just three days after the retailer reported earnings. Though Gap made it clear that its guidance excluded the impact of the coronavirus, its guidance may have painted a rosier picture than was realistic. Investors now seem to be realizing that earnings per share will be significantly worse than the $1.23-$1.35 that management had projected. 

Best Buy has not yet announced any store closings or reduced store hours, which may be one reason that the stock is outperforming its peers. It's also possible that the company sees a spike in online sales, as Americans realize that they will be spending more time at home and purchase digital equipment to help with internet connectivity and speed or home entertainment products.

Macy's has not yet announced store hours or closings either, though it did temporarily close one of its locations on a false report of exposure to COVID-19. Though it was false, that news underscores the fact that shoppers are likely to be reluctant to visit stores, especially after the Centers for Disease Control and Prevention said last night that gatherings of over 50 people should be avoided for the next eight weeks.

Now what

The situation for retailers is unlikely to improve in the near future as the outbreak continues to spread. The group above was profitable before the outbreak, but many of them were struggling, losing market share to online retailers, and those challenges will only be exacerbated by the outbreak.

Earnings reports from retailers like Designer Brands (formerly DSW), Michael'sFive Below, and Children's Place are due out this week, which should shed further light on the challenges the sector is facing, but an honest forecast is likely to be ugly.