Over the past two months, despite the expectations of increased sales during the Christmas season, major retailers such as Target and Walmart have continued to record large losses.
Since November 9, the share price of Walmart has dropped from $105 to $87, by more than 17 percent, a steep loss for the largest retailer in the US market valued at $253 billion.
Other retailers like Target and Costco have recorded losses in the range of 20 percent to 30 percent, with Target suffering a 30.3 percent loss from $87.6 to $61 within a two-month span.
According to a report released by FT, analysts are anticipating a massive sell-off in January and potential full-blown bankruptcies.
The report comes in a time in which the Office for National Statistics has shown a 1.4 percent monthly increase in sales for UK retailers with two days before Christmas.
However, while sales figures are high, Richard Lim, the chief executive of Retail Economics, said that the profit margins of retailers tend to drop during holiday seasons with large discounts.
Lim stated that the increase in sales are keeping retailers afloat in both the US and UK stock markets, but in January, both major and small retailers will experience the impact of Christmas discounts and perks provided to consumers.
“Pre-Christmas discounting is damaging for margins and I think we will see the effect of that in January,” Lim said.
Mike Ashley, the head of Sports Direct, went as far to say that retailers were “smashed to pieces” in the pre-Christmas season, informing investors about a likely market carnage in the first quarter of 2019 following a brutal Christmas season for most retailers.
Amidst the intensifying trade war between the US and China that has caused major stock markets in the likes of South Korea, Japan, China, and the US to struggle, and the uncertainty surrounding Britain’s plans to leave the European Union, one retail executive said that consumers have become more cautious in spending.
The executive, who asked to remain anonymous, said:
People see the headlines about no deal, and [Bank of England governor] Mark Carney talking about house prices falling 30 per cent, and they start to think: ‘do I really want to be loading up my credit card right now?’
Throughout the fourth quarter of 2018, analysts have said that retailers are expected to demonstrate a steep decline in value due to the threats posed by Amazon, Alibaba, and the e-commerce sector on traditional retail.
However, the bloodbath in the US stock market has also taken a toll on e-commerce platforms and retailers. Since September, Amazon has lost 31.15 percent of its market cap as its share price plunged from $2,000 to $1,377.
With the Dow Jones below 23,000 points and several prominent analysts seeing a potential decline below 20,000 points, the US market is at risk of entering a bear market.
A bear market is generally considered as a 20 percent decline from an asset or a market’s all-time high. As of December, the Dow Jones is down 18 percent from its ATH reached on October 3.
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Last modified: May 20, 2020 1:20 PM UTC