3 Retail Stocks That Could Collapse in the E-Commerce Shakeout

Stocks to sell

With multiple factors in play, a major shakeout is due in the e-commerce space. The rise of AI advances in logistics tech and the post-pandemic norm will play a huge role in driving e-commerce moving forward. In this race, though, you’d expect several companies to be left in the dust, making it an opportune time to consider retail stocks at risk.

The intensification of the e-commerce shakeout spells trouble for traditional retail stocks, with the most efficient and tech-savvy companies likely to survive. With the big fish in the e-commerce realm expected to consolidate their power, the retail stocks at risk will most likely fail to maintain their market share.

Zumiez (ZUMZ)

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Zumiez (NASDAQ:ZUMZ) is a top specialty retailer known for its action sports apparel, footwear, and accessories. It houses several popular brands synonymous with skateboarding, surfing, and motocross lifestyles.

The firm has seen a remarkable slowdown in recent quarters amidst a challenging economic backdrop. Sales growth has been negative over the past several quarters, weighing down its bottom-line and financial flexibility. In recent quarters, the firm has looked to cut costs, closing several underperforming stores in the process. However, its quarterly results have shown little impact of these belt-tightening measures.

After reporting a meager 0.6% growth in its most recent quarter, Zumiez expects sales to drop as much as 40% sequentially in the first-quarter (Q1). It expects a stressed operating environment with a considerable slowdown in Europe.

Despite the lackluster results, Zumiez stock grew 14% last year, raising questions about its valuation. To put things in perspective, the stock trades at more than 27 times forward cash flows, roughly 170% ahead of the sector median.

Stitch Fix (SFIX)

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Stitch Fix (NASDAQ:SFIX) is an online retailer that was arguably one of the biggest pandemic stories. We saw how its stock went parabolic during the pandemic years, achieving an all-time high stock price of $113.76 back in January 2021. However, SFIX stock’s now changing hands for just loose change at $2.43, 98% below its all-time highs.

Its debacle is most linked to the normalization of pandemic-led tailwinds, marked by negative sales growth over the past few years. In fact, its posted negative YOY growth in sales since the third-quarter (Q3) of 2022. Moreover, it lost a hefty 572,000 active clients in its most recent quarter, a 17% drop YOY. On top of that, its profitability metrics are firmly in the red, with its EBITDA and net income margins trailing behind its 5-year averages (not that they were impressive by any stretch).

Looking purely at momentum, which shows a negative 94% return in the past three years, is enough evidence to offload the stock.

National Vision Holdings (EYE)

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National Vision Holdings (NASDAQ:EYE) operates a chain of retail stores in the U.S. that deals with optical products and services. With a widespread presence in the country, it posted consistent single-digit growth. However, the recent quarters’ weaknesses have weighed down its top-and-bottom-line results. Perhaps the biggest blow has been a plunge in the net loss territory, with a negative 3.4% margin, lagging behind its 5-year average of 2%.

Moreover, the choppiness in results is also linked to the termination of its partnership with Walmart (NYSE:WMT), resulting in $4.9 million in expenses. Given its current positioning, it’s tough to foresee a turnaround in EYE stock. A huge chunk of its business still relies on physical stores at a time when online players are nibbling away at its market share. Considering its situation, EYE must consider major strategic adjustments to regain profitability.

On the date of publication, Muslim Farooque did not have (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.

Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.

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