There are 7 ‘sins’ the retail industry keeps committing and it's killing the stocks
Credit Suisse has released a list of "seven retail sins," highlighting some problems faced by retailers that the firm's analysts saw emerge in a slew of earnings reports over the past few weeks.
"Results last week, particularly in the sporting goods space, serve as a reminder of some of the key issues impacting the retail sector," wrote Credit Suisse analyst Seth Sigman in Monday's note to clients. "Our view is that retail is not dead, but needs to change, and take the pain."
Major retail stocks including Dick's Sporting Goods (DKS) and Foot Locker (FL) plunged last week after reporting feeble sales, pulling down other retailers in their wake. After Foot Locker's report, shares of Nike (NKE) fell in response, down more than 5 percent since last Thursday.
As fears of Amazon (AMZN) dominance drag on the retail industry, Credit Suisse analysts will be looking for retailers that can tackle these seven "sins" to better protect themselves against gloomy sales.
Here are the seven "sins" as described by Credit Suisse.
1) "Pricing is too high, in an increasingly more price transparent world. We are seeing more retailers respond by lowering prices (most recently Dick's), or trying to vertically integrate to support margins (e.g., Michaels)."
2) "Retailers that are over reliant on brands are in trouble, as those brands expand distribution and struggle with their own growth. We believe that was one of the key issues for Hibbett Sports (HIBB) and Dick's. It's a big issue for Bed Bath & Beyond as well."
3) "Retail is over-stored."
4) "'Omni-channel' still needs to be figured out."
5) "E-commerce investments are disruptive to the model and seem to be never ending. Best Buy has openly discussed the need to continue investing. "
6) "Retailer cost structures are too high. We have recently seen the first round of cost cuts in years, including at Bed Bath & Beyond (BBBY), Dick's, Lowe's (LOW), Party City (PRTY), among others."
7) "There is little, if any customer loyalty to retailers without their own brands."
The worst performer in the S&P 500 this year is Foot Locker, down more than 50 percent. Macy's (NYSE:M), L Brands (LB), Advance Auto Parts (AAP), Signet Jewelers (SIG) and Under Armour are also among the 10 worst performers this year in the benchmark, making the list dominated by retail.
One retailer bucking the trend this year is Best Buy (BBY), whose shares are up 40 percent so far in 2017.
Best Buy "cut its prices, improved its online offering, enhanced the store experience and partnered with vendors, all of which supported a reacceleration in market share, and then margin improvement," writes Credit Suisse in the note about the electronic seller's resurgence.
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