Please ensure Javascript is enabled for purposes of website accessibility
Search
Accessibility Menu

These 11 Retailers May Not Survive 2018

By Leo Sun - Jul 9, 2018 at 7:25AM
An abandoned strip mall.

These 11 Retailers May Not Survive 2018

The retail apocalypse enters its ninth year

Many North American retailers were wiped out in the “retail apocalypse” which started in 2010. Amazon (NASDAQ:AMZN) and Walmart’s (NYSE:WMT) growth, the rise of fast fashion retailers, reserved spending habits after the Great Recession, and dying malls crushed countless retailers.

Some retailers survived the downturn by closing stores and expanding their e-commerce presence, but others weren’t as lucky. Let’s examine 11 retailers that could struggle to remain relevant this year.

ALSO READ: The Retail Apocalypse May Not Be What You This It Is

Previous

Next

A Sears storefront.

Sears Holdings

Sears Holdings (NASDAQ:SHLD) is the poster child of the retail apocalypse. The parent company of Sears and Kmart lost over 95% of its market value over the past decade as mall traffic dried up and it lost customers to e-tailers and superstores.

CEO Eddie Lampert, who took over the top job in 2013, couldn’t counter those industry shifts. Lampert closed stores, sold its Craftsman brand, and spun off its real estate holdings and other brands. Those moves softened Sears’ earnings declines, but its revenues kept declining.

Lampert’s latest “turnaround” plans -- which include a partnership with Amazon and mini-Kmarts inside Sears stores -- aren’t impressing investors. Wall Street expects Sears’ revenue to tumble 26% to $12.4 billion this year, and for its earnings to remain deep in the red. That’s a bleak situation for a company that finished last quarter with $3.5 billion in long-term debt.


Previous

Next

A bunch of open-box appliances.

Sears Hometown and Outlet Stores

Sears spun off Sears Hometown and Outlet Stores (NASDAQ:SHOS) in 2012. Its four banners sell home appliances, lawn and garden equipment, mattresses, apparel, sporting goods, and tools.

Unfortunately, the new company fared just as poorly as the original Sears. Sears was once a top destination for appliance buyers, but it was surpassed by Home Depot and Lowe’s over the past five years.

The company’s stock lost 95% of its value over that timeframe, due to a consistent streak of revenue declines and losses. Its comparable store sales plunged 10.5% last quarter as it desperately shuttered stores to stay afloat. It closed 21 stores during the quarter, and plans to close up to 100 of its Hometown stores during the current quarter. That’s a desperate move for a retailer that only has 882 locations left.


Previous

Next

A JCPenney store.

J.C. Penney

J.C. Penney (NYSE:JCP) was battered by the same headwinds that blew Sears off course. A disastrous “turnaround” effort by former CEO Ron Johnson between 2011 and 2013 -- which alienated the retailer’s core customers with inconsistent discounts -- exacerbated that pain. But for a while, it seemed like J.C. Penney would avoid Sears’ fate.

Marvin Ellison, who took over as CEO in 2014, expanded the retailer’s business with furniture, appliances, athletic apparel, and more women’s apparel. The company’s sales growth stabilized, and it didn’t aggressively shutter stores like Sears. Unfortunately, those efforts hit a brick wall during the first quarter.

After three quarters of positive sales growth, its sales growth turned negative again with a 4% drop. Its comps rose just 0.2%, and it posted an adjusted net loss of $69 million. Ellison blamed supply chain issues, markdowns for apparel, and adverse weather conditions for the weak numbers. But Ellison abruptly resigned after the report, leading investors to believe that J.C. Penney’s turnaround was falling short of expectations.

ALSO READ: J.C. Penney Has an Underappreciated Opportunity: Toys


Previous

Next

An aisle in a bookstore.

Barnes & Noble

Barnes & Noble (NYSE:BKS) is still the largest brick-and-mortar bookseller in the United States. However, direct competition from Amazon wiped out 65% of its market cap over the past three years. Barnes & Noble closed stores, expanded its digital business with its Nook reader, and spun off its education unit as Barnes & Noble Education (NYSE:BNED) in 2015.

These moves helped it tread water, but they didn’t counter its long-term threats. As a result, Barnes & Noble’s revenue tumbled for 15 straight quarters, and its bottom line remains in the red. Its comps dropped 4.1% last quarter, with a 4% decline in retail sales and a 22% drop in NOOK sales. Analysts expect its sales to slip 2% this year.

In early July, the company announced that it had fired CEO Demos Parneros for “violations of the company’s policies” without disclosing any additional details. That news, along with Amazon’s plans to render the retailer obsolete, casts a dark cloud over its future.


Previous

Next

An Office Depot storefront.

Office Depot

Office Depot (NASDAQ:ODP) is another company being rendered obsolete by Amazon and other e-tailers. It tried to counter the competition by merging with its rival Office Max in 2013, but combining two losers didn’t make a winner. Staples tried to buy Office Depot in 2015, but the merger was abandoned in 2016 due to antitrust concerns.

Office Depot’s stock lost more than 70% of its value over the past three years. It broke a multi-year streak of sales declines with 6% sales growth during the first quarter, but that growth was padded by its acquisition of CompuCom, a provider of IT managed services, infrastructure solutions, and consulting services.

Meanwhile, its retail comps stumbled 8.4%, its operating margin contracted and its adjusted EPS was cut in half. It generated $170 million in free cash flow for the quarter, but it’s still shouldering $1 billion in long-term debt. Analysts expect Office Depot’s revenue to rise 6% this year, thanks to CompuCom, but for its earnings to tumble 31%.


Previous

Next

A spoon full of various vitamins.

GNC

For decades, customers bought vitamins and nutritional supplements at GNC’s (NYSE:GNC) brick-and-mortar stores. However, the rise of superstores, warehouse retailers, and e-tailers started rendering GNC’s business obsolete. In recent years, several lawsuits which questioned the efficacy of its ingredients also tarnished the brand’s reputation.

As a result, GNC’s stock tumbled more than 90% over the past three years. Its revenue declined for nine straight quarters, and analysts anticipate a 5% drop this year. Its earnings, which face pricing pressure from its competitors, are expected to plunge 66%.

GNC believes that expanding into overseas markets like China, improving its loyalty program, and partnering with Amazon might get its business back on track. Unfortunately, it’s doubtful that these moves can help the specialty retailer defend its niche against big rivals like Costco.

ALSO READ: Investors Are Betting Big Against These 3 Retailers

Previous

Next

Jars of vitamins and supplements.

Vitamin Shoppe

GNC’s top rival, Vitamin Shoppe (NYSE:VSI), was torpedoed by the same problems that sank GNC. Its sales tumbled for six straight quarters, and analysts expect it to post a 5% sales decline and a net loss for the full year.

Vitamin Shoppe’s stock tumbled more than 80% over the past three years. The company’s current turnaround strategies include an expansion of its e-commerce ecosystem, new delivery services, higher marketing investments, and “retooled” pricing and promotion initiatives.

Unfortunately, those efforts sound generic, expensive, and don’t really counter the growing threat of superstores and Costco. Its ongoing store closures might soften the impact on its margins, but it also weakens its brand presence against GNC. There are persistent rumors about GNC merging with Vitamin Shoppe, but combining two losers won’t make a winner -- as we saw with Office Depot.


Previous

Next

Hands hold a jar of multivitamins with the nutrition info facing out.

Vitamin World

Privately held Vitamin World, which competes against GNC and Vitamin Shoppe, isn’t faring any better than its rivals. The company filed for bankruptcy last November, and announced plans to close 124 of its stores and sell the remaining 210 locations.

There’s a glimmer of hope that GNC or Vitamin Shoppe might buy the company, but both companies would probably prefer to see this vanquished competitor simply disappear.

Previous

Next

A woman shops for sneakers.

Foot Locker

Foot Locker (NYSE:FL) was once a top destination for footwear and athletic wear shoppers. But in recent years, leading footwear makers like Nike, Adidas, and Under Armour opened their own brick-and-mortar stores and promoted their own e-commerce platforms. Department stores, superstores, and larger sportswear chains also took a bite out of Foot Locker’s sales.

Foot Locker actually posted year-over-year sales growth over the past two quarters.

But if we exclude the impact of a soft dollar, its sales would have declined last quarter. Foot Locker’s comps also stayed negative for the past two quarters -- due to slumping store traffic and weak direct-to-consumer sales.

The company believes that closing stores, securing premium products from leading brands, and fresh e-commerce investments will get its growth back on track. However, its gross margins are stuck in a downward trend, and its so-called partners are becoming its biggest competitors.

ALSO READ: Why Foot Locker Is Confident in a Sales Rebound Ahead

Previous

Next

Person using a wrench on an automobile engine.

Payless ShoeSource

Payless ShoeSource filed for bankruptcy last April and subsequently closed about 900 stores worldwide to reduce its store count to about 3,500. Payless’ downfall came in two stages.

First, its core business was crippled by weak mall traffic and competition from larger retailers. Second, private equity firms acquired Payless’ parent company in 2012 for $2 billion and left the chain drowning in debt. Payless’ bankruptcy filing listed liabilities between $1 billion to $10 billion, compared to just $500 million to $1 billion in assets.

Payless entered restructuring agreements to reduce its debt load by about 50%, lower its annual interest costs, and gain access to additional capital. It also secured up to $385 million of debtor-in-possession financing, which gave the company up to $120 million in incremental liquidity during the Chapter 11 process. This means that Payless is on the ropes, but it isn’t going down for the count yet.


Previous

Next

A young woman in sunglasses holds shopping bags over her shoulder.

Charlotte Russe

Many apparel retailers bounced back this year, but privately-held Charlotte Russe was left out in the cold. The apparel retailer, which targets female shoppers in their teens and twenties, was left behind as fast fashion retailers conquered the market.

To avoid bankruptcy, Charlotte Russe completed an out-of-court restructuring in February. The move reduced its term loan debt from $214 million to $90 million, cut its interest expenses by around 50%, and extended its maturity date by five years. But in return, the lenders received 100% of the company’s equity. 

Charlotte Russe plans to reinvest its newfound liquidity into its brick-and-mortar stores and bolster its online presence. S&P Global upgraded its debt after the restructuring, but warned that it still faces “intense competition in the specialty apparel space, lower store traffic, and our expectation for some disruption in supply chain related to the uncertainty around the recent financial restructuring.”


John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Leo Sun owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon, Nike, Under Armour (A Shares), and Under Armour (C Shares). The Motley Fool has the following options: short September 2018 $180 calls on Home Depot and long January 2020 $110 calls on Home Depot. The Motley Fool recommends Costco Wholesale and Home Depot. The Motley Fool has a disclosure policy.

Previous

Next

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.