By Josh Enomoto, InvestorPlace Contributor | Feb 8, 2017, 2:26 pm EST
The Sears collapse is just the beginning as weak retail stocks take a turn for the worst.
While aggressive short recommendations are rare due to the markets’ upward bias, the bearish position on SHLD justifies itself. Last year, Sears stock lost daring investors 53%. This year, it will lose even more, becoming the worst performer among retail stocks.
However, the type of retail business that Sears specializes in — ie., department stores — is imploding.
According to data provided by the U.S. Federal Reserve, department store sales fell by more than 7% last December on a year-over-year basis. Prior to 2016, the average department store’s sales growth was a more palatable decline of 2%. One would have to go back to the aforementioned 2008 crisis to see department stores post a worse performance. It goes without saying that retail stocks levered to department stores are a bad bet.
Here’s the painful reality — people just aren’t shopping the way they used to. Maybe people already have the clothes that they want, or the shoes that they wear.
Maybe Amazon.com, Inc. (NASDAQ:AMZN) killed their appetite for finding parking or waiting in lines.
Whatever the reason, Sears’ collapse is just the beginning for the vulnerable members of a weakened sector. Here are three retail stocks that will see an ugly 2017.
1. Retail Stocks to Sell: Sears Hometown and Outlet Stores Inc (SHOS)
2. Retail Stocks to Sell: Stage Stores Inc (SSI)
Stage Stores Inc (NYSE:SSI) is the triple threat of retail stocks, as previously mentioned, department stores nationwide have recently fallen out of favor.
Second, Stage Stores sells such disposable consumer goods such as accessories and footwear, which again have demand issues. Finally, the company operates primarily in small and mid-sized towns.
SSI is remarkably terrible. In 2016, Stage Stores posted a loss in the markets exceeding 50%, slightly pipping Sears Hometown in awfulness.
3. Retail Stocks to Sell: Stein Mart, Inc. (SMRT)
Today, people use the internet to bring the department store experience to them. As such, SMRT couldn’t be more outdated if it tried.
To be fair, Stein Mart stock didn’t do too bad, at least compared to many other retail stocks. Last year, shares lost 19%. Stein Mart simply collapsed. So far, SMRT has lost risk takers 36%, and the pain is far from over.
That’s because big-box retail stocks are also knee-deep in the smelly stuff. If a massive entity like Target Corporation (NYSE:TGT) is down 11% for the year, what are Stein Mart’s chances? SMRT has an inferior economy of scale, and it has limited coverage.
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