Shares of online retailer Overstock.com (OSTK 2.09%) fell just shy of 15% at one point this week according to data from S&P Global Market Intelligence. Not far behind were American Eagle Outfitters (AEO 1.13%) and The Children's Place (PLCE -0.40%), which were both off by as much as 13% at one point during the week.
At the start of trading on Friday Dec. 17, all three of these retailers were sitting with steep weekly losses. Overstock.com had clawed back a few percentage points, ending the day on Dec. 16 with a 12% weekly decline. The Children's Place was just a little over 12% lower. And American Eagle Outfitters was just a tenth of a point off of its worst levels of the week.
The first thing to realize here is that none of these retailers reported any notable news this week. In fact, the most recent updates here were all earnings reports that hit the newswire between late October and late November. Basically, the declines weren't company-driven. It was the big picture that got investors into a dour mood.
For starters, the newest variant of the coronavirus, omicron, is quickly spreading around the world. While it appears that people sickened by this latest version aren't getting as ill, it seems to spread far more easily than earlier variants. It isn't clear yet what that means for the global economy, but countries and some U.S. states are starting to increase health protocols and enact other restrictions. This could have a downbeat effect on retailers like American Eagle and The Children's Place, which both have a material physical presence.
The Children's Place had just over 700 stores in the United States and Canada at the end of the third quarter. That's down by about 12% year over year, as it has been closing locations of late with online sales becoming increasingly important. American Eagle had 1,121 stores across its various brands at the end of the third quarter. There is an interesting sub-story here, however, as the company is growing its Aerie store base while working to rightsize the footprint of its other brands.
That said, American Eagle has also been working on another initiative. It recently acquired logistics companies that will both help it with its sales flow and provide services to other retailers. Essentially, it appears to be looking to enhance its distribution reach and scale while allowing competitors to come along for the ride. There is a notable digital component here, which keys in on the long-term trends in the retail sector. However, Overstock.com also had a bad week, so even this effort wasn't enough to offset the negatives.
The second headwind this week, which impacted both Overstock.com and this pair of largely brick-and-mortar players, was a slowdown in consumer spending. There are multiple lines of thought there. One notion is that earlier sales strength may have pulled forward holiday sales. And then there's the worry that inflation is both eating into consumer buying power and eroding consumer confidence, leading people to pull back. Either way, even online retailers aren't likely to avoid the pain if the broad slowdown in spending picks up speed. Investors reacted accordingly.
It has been a volatile year in the retail sector with many stocks, these three included, rising sharply early on and then pulling back. Right now there are a lot of moving parts in the retail space in what is generally the most important part of the year for this sector. So it's not surprising that investors would be on edge.
However, investors should probably think about the longer-term issues for the sector, noting specifically American Eagle Outfitters' foray into the logistics area. Of the three names here, it probably has the most levers for growth ahead of it, including expanding its Aerie brand, the ongoing shift toward online shopping, and helping other retailers better handle their own logistics needs.