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Consolidation in Retail

The rise of E-commerce and the fall of retail has long been on the radar for many investors. Over the past two years we have seen multiple companies fail to keep struggling stores afloat. Sears, Kmart, Macy’s and Kohl's have been closing stores and cutting their workforces. While these stores continue to struggle, the question becomes whether the same fate will bely other stronger retailers or whether the weakness of some will lead to the strengthening of others.

The continued consolidation of the retail sector will not create weakness for all, but rather, strengthen the healthiest companies. In the already consolidated home-improvement industry there are three main competitors, Home Depot, Lowes and Sears. If there was overall weakness in the industry we would expect each company to experience a deteriorating share price, however both Home Depot and Lowes have recently experienced all time high’s. Sears in the mean time has seen plummeting sales and an all time low for its share price. It is worth mentioning that Sears is a unique company in that they are a combination home-improvement and department store. Sears in part suffered from an identity crisis, which contributed to its weakness. Nonetheless its failure has opened up market share for its competitors. It would seem that select strong companies are able to benefit and even thrive from the weakness of competitors.


In essence, it is survival of the fittest in the retail sector. The strong will get stronger while the weak will proceed to be wiped out leading to further consolidation. The key to picking the winners will be determining which company is best positioned to benefit from these failing companies. Home-improvement retailers have an edge over E-commerce, as the products they sell are less conducive to online shopping. While different, the concept explained above is still analogous to department store retailers. In the challenging pure department store industry the companies with the healthiest balance sheet and most stable performance will be most likely to have capacity to take over market share when it becomes available. The rational is worth a deeper look into the competitive landscape of department retailers. 

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