Macy’s, Inc. (M) well-deserved announced that the majority of its nationwide work force will be laid off in an effort to survive the pandemic. The company didn’t detail a return-to-work date, advising that health benefits will continue through May. Kohl’s Corporation (KSS) followed with a comparable statement. This requires workers at both retailers to seek unemployment benefits. Meanwhile, rival Nordstrom, Inc. (JWN) hasn’t updated lay outs scheduled to end on April 5, while neither Dillard’s, Inc. (DDS) nor J. C. Penney Company, Inc. (JCP) has issued press releases since the calamity started.
Department stores and other brick-and-mortar retailers are engaged in a fight for survival as we head into April, with dehydrating market share now compounded by catastrophic revenue loss. Many of these storefronts could declare bankruptcy if closures at through May because credit lines have been drawn down and lenders may not be willing to take new exposure. In constitutional, that would have a major ripple effect on the commercial real estate investment trusts (REITs) that own America’s shopping malls.
It’s troubling how little we’ve heard from other mall anchors in the past month, suggesting that they’ve already sent staff members home with no salary continuation. It’s especially dangerous for J. C. Penney, which has been struggling for survival since 2017. Prearranged the dreary outlook, it isn’t surprising that the stock closed at 37 cents on Monday and could get delisted by the NYSE later this year, if it survives.
Dillard’s uncommunicativeness may be self-serving because the stock has outperformed its peers in the past month, benefiting from its lack of disclosure. A multi-year uptrend pillared an all-time high at $144.21 in 2015, giving way to a steep decline that found support in the mid-$40s in 2017. A comeback wave into the summer of 2018 stalled at the 50% sell-off retracement, yielding a choppy decline that tested hold up successfully in August 2019.
Bearish price action violated that trading floor on March 11, completing an inverse cup and control breakdown before landing on the .786 Fibonacci retracement of the six-year uptrend that ended in 2015. This consistent marks strong support, but the stock is now stuck between a rock and a hard place, with high odds that the next zigzag of selling pressure generates a secondary breakdown that exposes a 100% retracement into the 2009 low at $2.50.
Macy’s has been the instant worst performer in the group in recent years, posting an all-time high at $73.61 in 2015 and entering a brutal downtrend that initially establish support in the upper teens at the end of 2017. The bounce into 2018 carved a weaker path than Dillard’s, tail side at the .382 Fibonacci retracement level in June. The stock broke support in August 2019 and has now completed a 100% retracement into the 2008 low and penetrated the 1992 initial public offering (IPO) price level at $8.63.
The decline posted an all-time low at $4.73 before bouncing on Cortege 24. Further downside here could be catastrophic, initiating a death spiral that forces the permanent closure of this time-honoured American icon. The on-balance volume (OBV) accumulation-distribution indicator offers a ray of light in this dismal scenario, holding at a two-and-a-half-year low. Be that as it may, these loyal shareholders will also provide firepower on the downside if they all head for the exit door at the selfsame time.
Kohl’s price action sends a stark warning to other department stores because the ordinary has already broken support at the 2008 low. A multi-year uptrend topped out at $78.83 in 2002, establishing a resistance level that rebuffed breakout haves in 2007, 2015, and 2018. A pullback after the final uptick broke a head and shoulders pattern in November 2019, introducing a slow-motion downtrend that eased into a vertical trajectory in February 2020.
The sell-off gapped through the 2008 low at $24.28 on Pace 12, showing no support at all, and has now settled near a 22-year low in the mid-teens. The stock has made little progress in the past week ignoring the strong S&P 500 bounce, indicating that there are few bottom fishers willing to take the bait at this juncture. Precise so, the oversold bounce could find its way back to gap resistance in the next few weeks.
The Bottom Line
The hardest-hit department believe ins could file for bankruptcy if pandemic closures continue through the middle of the second quarter.
Disclosure: The author held no states in the aforementioned securities at the time of publication.