Retail Stocks Break New Ground On Worst Month Ever

It's been a terrible month for retail. Retail that isn't grocery stores or pharmacies, that is; that retail is doing pretty nicely. But if you're not selling food, medicine, or toilet paper, you're having a pretty terrible month. Assuming you're even open to begin with, dismissed as “nonessential” by government figures who will likely find out how “essential” you actually were first-hand when their tax base is shot. New reports have emerged suggesting that the pain is pretty universal in the retail sector right now, as measured by the XRT retail exchange-traded fund (ETF).

Forced Off the Retail Therapy Couch

The XRT retail ETF demonstrates the broad-ranged disaster that is the stock market under coronavirus threat right now. XRT is down 33% just for the month of March. The picture gets even worse when you look past the aggregate to individual issues within: several retailers—including Macy's (NYSE:M), Kohl's (NYSE:KSS), and Guess (NYSE:GSS)—have each fallen over 60%. though some of these losses have recently partially reversed.

Of course, some here might point out that everybody's having a bad month. The constantly-plunging Dow numbers, which have to date completely backtracked every gain seen since the start of the Trump administration at last report, bear that much out. However, making comparisons among other sectors quickly illustrates how bad it is for retail. For instance, the ETF that tracks biotech issues—the XBI ETF—is actually up 4% in the last week. By comparison, XRT has lost 5%.

An Outgrowth of Previous Problems

The weakness seen in retail today isn't just due to the coronavirus' ongoing hardships, though it certainly isn't helping. According to some like Oppenheimer's head of technical analysis Ari Wald, the troubles currently seen in retail are at least partially the result of all the troubles seen in retail in general over the last few years.

Essentially, retailers are tackling one of the worst tragedies the country has ever seen from a position of weakness. Not only is the problem we collectively face a disaster by most any standard, but also, the retailers have fewer tools in the toolbox to tackle the problem. Wald pointed out that the S&P's retail SPDR has been on the decline for the last several years, and is currently facing a “seven-year topping pattern.” This prompted Wald to suggest “sell on strength rather than buying weakness.”

Some Bright Spots Emerge

Naturally, the disaster in retail hasn't extended throughout the sector. Anyone who's tried to buy toilet paper in the last week knows that much full well. Joule Financial's Quint Tatro drew a stark dividing line between companies that are likely to do well and companies that aren't in retail, and it all came down to one key point: what they sell.

Joule Financial was focusing on “staple-type retailers,” like Target (NYSE: TGT) and Walmart (NYSE: WMT), who sold a little bit of everything, including all those things that people are frantically demanding right now. Given that Target is up 3% on the week at last report, and Walmart 7%, the comparisons are clear. However, Joule Financial also made it clear that they were planning to avoid specialty retailers for now, as these were less likely to survive going forward.

The Missteps of the Past Return to Haunt

One thing that's become abundantly clear during this coronavirus outbreak is that online retail is a lot more resilient than we ever thought. As long as the lights and the connections stay on—and that was one of the biggest things that were kept running during this entire outbreak—people could continue working and keep building the economy. Amazon (NASDAQ: AMZN), for example, is already ramping up worker pay in a bid to draw more employees to help meet the aggressive demand. We've already seen how Nordstrom (NYSE: JWN) shut down, buoyed by the online sales that make up about a third of its take.

Retailers whose online presence was anything less than robust, meanwhile, got hit. While few likely ever envisioned a scenario where Americans would be largely forbidden from shopping by a government that depends on a percentage of sales and retail workers' taxes to survive, such a scenario has arrived.

Online shopping is no longer merely a convenience. It's now a vital tool to ensure continuity of business in all but the worst catastrophes. If retailers survive this downturn—and there are already signs that suggest America will be getting back to work soon—look for an online renaissance packed with new and exciting features as retailers try desperately to use the internet as a backup for any future problems like this.