The SPDR S&P Retail ETF (NYSEArca: XRT), the largest retail-related exchange traded fund, has been sliding since December and is off 3% over the past week, underscoring the challenges currently facing many traditional, brick-and-mortar retailers.
XRT and traditional retail stocks are being hampered by a holiday shopping season that saw many consumers turn to online retail venues. Consumer spending has been muted this holiday season.
According to First Data, retail spending is up 2%, or slightly slower than the 2.4% gain at this time last year, as online spending outpaces buying in physical stores from October 29 through December 12, reports Anne D’Innocenzio for the Associated Press. In contrast, online sales growth was up 9%.
Adding to the concern for an ETF such as XRT is the fact that the broader consumer discretionary sector, which includes retail, is in the middle of its seasonally strong period. In fact, there are another six or seven weeks remaining in the strongest period of the year for the discretionary sector, but XRT is scuffling.
“As a group, traditional retail stocks have long faltered against competition from e-retailers like Amazon; the S&P 500 multiline retailing group is nearly 21 percent off its 52-week highs and down nearly 16 percent over the last year, while the S&P 500 Internet & Catalog Retail industry group is up 46 percent in the same time. And some strategists see further weakness ahead for the group,” reports CNBC.
Other consumer discretionary and retail ETFs have been thriving, namely those with heavy tilts toward e-commerce names.
The trend away from traditional department stores and apparel retailers to online shopping destinations should benefit the Amplify Online Retail ETF (NasdaqGM: IBUY), which debuted last year. IBUY, which is comprised of global companies that generate at least 70% of revenue from online or virtual sales, has been one of the best-performing retail ETFs since its inception.
IBUY provides exposure to many familiar online names, such as WayFair Inc (NYSE: W), Etsy (NasdaqGS: ETSY), FTD Companies (NasdaqGS: FTD), Overstock Com Inc (NasdaqGS: OSTK) and Priceline (NasdaqGS: PCLN).
“Target on Tuesday posted its worst day of trading in years following a disappointing earnings announcement. The multinational earnings announcement fell short on revenue, comparable store sales and its full-year 2017 forecast. Sales also declined for its sixth straight quarter. Target is down nearly 19 percent year to date,” according to CNBC.
For more information on the consumer sector, visit our consumer discretionary category.