4 Retail Stocks that Wont Survive The 2020 Recession
A recession, in the lay man’s words can be described as when the growth of the economy of any country or region stops. According the NBER (National Bureau of Economic Research), recession as the significant decreasing in the economic activity of an economy that last for considerable time period and have manifold affects. This indicates not only continuous decreasing in the GDP but also decreasing income levels, employability and manufacturing. The 2008 recession in USA affected many industries and there are several retailers that made it through the first one that wont make it through the next. This article is going to mentions four companies that will not make through another recession. Read along and find out why!
Best Buy $BBY
When was the last time anyone ever said they got a better deal at Best Buy? Best Buy Co, %Inc operates as a retailer of technology products, services, and solutions in the United States, Canada, and Mexico. Access to cheap credit has the blue and yellow retailer flying high for now but any serious economic downturn could see this retailer rushing to close stores. With a net margin at 3.5%, Best Buy doesn’t have any breathing room for a downturn.
Operating revenue has remained mostly flat and Q4 has for the last 5 years has kept the retailer going. One bad quarter or Christmas season and would send this stock straight to the floor. Best Buy is just a year or so away from trading back below $40 a share. I smell Circuit Cit 2.0.
Macy’s, the famous department created in 1858 might not be around too much longer. Macy’s sells a wide range of products including clothing items for men, women and kids; furniture; Jewelry; accessories. Macy’s is trying to establish itself again but finding it very difficult to get any momentum with a young generation that finds the brand dull and unoriginal. Sales have decreased nearly 8% every year since 2015 till the present. Net income has decreased 27% from 2015 to 2019. EPS which was reported to be $4.30 in the year 2015, now stands is $3.60.
As the years go buy, the Hudson Bay Company offer to Macy’s which was rejected by the board look’s more and more regrettable. With heavy legacy debt, still too many stores and the death of malls, its only a matter of time till this once retail giant becomes a memory.
Foot Locker $FL
Foot Locker is a popular shoe retailer geared toward 15 to 40 year olds that was established in 1988. The company barely made it through the 2008 recession and I’ve got great confidence that they wont make it through another one. Unlike 2008, the company has practically gone NIKE only. Nearly 70% of its product line is Nike. Operating income has declined since 2015 and Net income is flat.
GAP is the American retailer for clothing and accessories founded in 1969. It is important to note that the company also owns Old Navy and Banana Republic. After knocking on the door to bankruptcy in the last recession, GAP bounced aggressively but is still struggling to get the strong footing that made it a household name back in the early to mid 1990s. Comparable sales for the first quarter of fiscal 2019 decreased 4 percent compared with a 1 percent increase for the first quarter of fiscal 2018. Profit margins have dropped significantly. Low sales have continued and the company has responded by offering even more discounts and making up the losses by cutting back on expenses.
On February 28, 2019, the Company announced plans to restructure the specialty fleet and revitalize the Gap brand, including closing about 230 Gap specialty stores during fiscal 2019 and fiscal 2020. The Company believes these actions will drive a healthier specialty fleet and will serve as a more appropriate foundation for brand revitalization. As of today, the company still own’s 3,666 stores after closing 83 in the beginning of 2019. A recent announcement to spin off Old Navy in my opinion spells of doom for the GAP brand. I wont be surprised to see this name on the defunct list on Wikipedia by the end of the decade.