There has been a loss in market value in consumer stocks of $550 million, putting pressure on an already stressed market thanks to high inflation and climbing interest rates.
Neil Saunder, an analyst at GlobalData Plc, said “It has been a bloodbath for retail. To a certain extent, I think that’s the rebalancing of expectations, and people seeing more crimp-on profit.”
Retailers are on the brink of collapse and investors are expecting rough waters for some time to come, as companies like Costco Wholesale Corp., Dollar General Corp and Best Buy Co., are set to report their earnings after Walmart Inc and Target Corp. Have had the worst stock price per share since 1987.
Inventories are currently full of products that customers are not wanting to buy, while important items are hard to come by because of supply chain disruptions and other mitigating factors that have contributed to shortages across the board – from fuel to baby formula.
Investors are worried after Walmart and Target, reduced the companies predicted profit margins after they failed to keep up with the rising costs.
The two companies had fared quite well during the pandemic, but rising fuel costs because of the Russian invasion of Ukraine has caught them unawares.
Shoppers are also being far more cautious about what they purchase, and Walmart and Target stated that customers are buying less expensive food brands, buying more private-label grocery items.
“The needs are squeezing out the wants,” according to D.A. Davidson analyst Michael Baker.
Dollar Tree and Dollar General could benefit from consumers moving to cheaper brands and even the clothing industry is taking a hit after Walmart said the weather – which has been wet and cold this spring – put a dent in their clothing profits.
Now retailers are swimming in clothing, televisions and other digital items because people are spending their money on the essential items instead of luxury items.
Jennifer Bartashus – an analyst at Bloomberg Intelligence – said the limited range at stores like Costco, give them far more flexibility, so have avoided some of the fall out because of it.
“We’re going to be thinking a lot more about inventory and the markdown risk that may be associated with inventory. That will be an overhang for earnings next week, and it will be an overhang later in the year as well,” Bartashus said.
Another analyst at Bloomberg Intelligence, Mike Campellone said inflation will add to the pressure of retailers that are holding more than 20 percent inventory – who could have their credit metrics affected.
Retail bonds are the worst performing this year and according to the data from Bloomberg Intelligence, the industry has dropped by 16 percent. Inflation and fuel costs are unlikely to change, so retailers are preparing for the absolute worst.