Is It Time To Check Out of the Retail Industry?

Is It Time To Check Out of the Retail Industry?

Some major retailers massively underperformed this week in their quarterly earnings reports, but is it time for them to panic just yet?

Just when we thought that we might have been slowly creeping out of the woods following some relatively solid earnings reports and a brief uptick in the market, we were suddenly pulled back in by one single industry.

Retail.

The changing face of retail…

A slew of sub-par earnings calls this week from some of the biggest players in retail has sent shockwaves across the entire industry. Walmart (NYSE: WMT) and Target (NYSE: TGT) both reported earnings within a day of each other and both missed Wall Street’s estimates in spectacular fashion. This has seen their shares get hammered, with the big-box retailers down 19% and 29% respectively since revealing their books to the world.

The resultant fall-out from this has seen other retailers take a similar hit, with brands such as Costco (NASDAQ: COST) and Kohl’s (NYSE: KSS)— neither of which is reporting earnings until at least next week — slumping by double-digits.

The blame appears to lie squarely at the feet of that dastardly duo — inflation and supply chain issues.

US inflation is currently at a nearly four-decade high, with costs skyrocketing across the board for retailers. While price raises are unenviable, there’s a good chance that they’ll simply be unavoidable. It now becomes a precarious balancing act between finding the right price that will keep cash-conscious consumers spending money, while still affording the firms a reasonable profit margin.

Add a still-damaged supply chain into the mix and the problems get exacerbated further, as retailers gamble on buying stock in bulk ahead of time to try and keep shelves stocked during key periods. Get this wrong, however, and they’re left paying to house seasonal stock that they might not be able to move.

Retail will always prosper in some capacity, but the face of consumer retail appears to be changing — even if only temporarily. The true winners will be the companies who can change with the times and with their customers. As for what companies that will be, only time will tell.

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