With inflation persistently bringing costs higher and a recession looking likely, it’s easier to find retail stocks to sell rather than buy.
Any company that was struggling with stagnating growth or shaky financials is probably entering a tailspin in current conditions. Retailers tend to feel the sting of a recession more acutely than other companies because of their relationship to consumer shopping behavior. Many consumers are starting to see their discretionary income run dry.
Inflation brings with it its own challenges, as input costs skyrocket. Retailers’ margins tend to be balanced on a knife’s edge anyway, so rising costs will quickly add up to damage on the bottom line. Passing those costs along to customers is no easy feat, unless you’re catering to the mega-rich, who might not notice. Brand power is everything to successfully pull off a price hike, and the retail stocks to sell are seriously lacking in this department.
Finally, there’s investor confidence to consider when it comes to choosing retail stocks to sell. Some retailers’ results suggest they’re in a strong position to weather the storm. But the question is whether or not they can deliver on their rosy outlook. Given the difficult macroeconomic headwinds, it’s worth asking yourself whether you truly believe what retailers are selling.
After disappointing investors this past year, fast-fashion mogul BooHoo (OTC:BHOOY) is now one of the retail stocks to sell. Even though most of the negativity has been priced in, many are making the case that BooHoo could be cheap enough to buy. But there’s a hard road ahead, and BooHoo doesn’t look particularly well-equipped to hike it.
The lynchpin of BooHoo’s story is growth in the US. But the cost of living crisis together with persistent inflation means BHOOY has been unsuccessful in making tracks. The group saw revenue fall in the double digits in that region. To add salt to the wound, BooHoo’s spent a pretty penny building out capacity to service growth in the US. If this slowdown is more than just a minor blip, the group could find it shelled out for nothing.
If BooHoo can turn the ship around, then the bulls could be right, and the current price would be an attractive entry point. Regardless, I’m keeping the stock firmly on my retail stocks to sell list. Given the fickle nature of fast fashion, BooHoo is likely to be long forgotten by the time the cost of living crisis abates.
But guidance for the remainder of the year was noticeably absent, and given the economic turmoil that China’s facing, this is a red flag investors shouldn’t ignore.
The group is in the process of spinning off some of its businesses, including its cloud arm, an important growth driver. While streamlining the business is probably the right call, it’s a risky decision to zero in on retail at a time like this. Much of Alibaba’s growth story as a stand-alone e-commerce firm rides on it’s ability to grow overseas.
China is by and large its biggest market, which comes with short term challenges thanks to turbulent economic conditions there. That means growth abroad will need to be thick and fast if investors are to see much reward. So far, there’s little evidence Alibaba will be able to deliver.
Blue Apron (APRN)
Meal delivery firm Blue Apron (NYSE:APRN) is in a precarious position. It’s trying to keep afloat now that the pandemic is mostly behind us, making it a retail stock to sell. The company capitalized on stay-at-home culture. But it’s clear consumers are no longer willing to pay a premium for pre-packaged ingredients for a home-cooked meal. With losses mounting, this is a stock investors should avoid at all costs.
The group finds itself up against a cost of living crisis that’s seeing consumers trying to cheapen their grocery budgets. The pressing need to lower costs has dulled the shine on Blue Apron’s offerings. Plus, with grocery delivery now the norm for most big chains, the convenience factor for a meal delivery kit is also much less appealing. Ultimately, Blue Apron is stuck in a declining industry. Without some kind of catalyst to turn the ship, the group is likely to continue on its downward spiral.
On the date of publication, Marie Brodbeck did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines