- Weak department-store earnings reports are sparking a selloff of retail stocks.
- More earnings are scheduled to come next week from Wal-Mart, Home Depot and Target.
- This week's results showed that sales deteriorated more than Wall Street was expecting.
Investors knew retailers were struggling, but it wasn't until this week's financial reports that they were able to gauge how much sales had deteriorated due to slowing foot traffic.
Department store operators Macy's, Dillard's, Kohl's and Nordstrom each reported first-quarter results on Thursday sparking a selloff in the sector, which continued Friday as Wall Street awaits a slew of more retailers' earnings to come.
Retailers have been under pressure as more sales shift online, helping Amazon and other online players like Wayfair.
"A decade ago we were talking about how to compete with Wal-Mart's everyday low prices, now it's Amazon," Thomson Reuters Director of Research Jharonne Martis told CNBC on Friday. "Reducing [store] footprints is a good way to go; they can reinvest in e-commerce. But it's not only rethinking e-commerce ... you also have to appeal to millennials."
As of Friday morning, shares of Macy's were down more than 17 percent for the week, while Dillard's stock was down 20 percent, Kohl's was down 11 percent, and Nordstrom's stock has dropped about 15 percent since Monday.
The S&P 500 Retail ETF (XRT) was falling near 1.5 percent Friday, trading on pace to mark its second consecutive negative day and its worst week since March.
The one winner of the retail sector is Wayfair, whose shares are up more than 27 percent for the week and are trading on pace for their best day since 2015. The internet retailer's shares rallied Tuesday after Wayfair reported better-than-expected first-quarter results, boosted by greater furniture sales.
Now that many of the department store chains have reported earnings, it's time for big-box retailers Wal-Mart and Target to take the stage. These two companies, along with names like Home Depot, TJ Maxx, Dick's Sporting Goods and Gap, are scheduled to report earnings next week.
The overarching narrative for much of the retail industry into the first half of 2017 has been store closures and bankruptcies.
For example, Bebe is shuttering all of its 180 locations, and more store closures are expected from hunting-and-fishing outlet Gander Mountain following its recent bankruptcy auction.
"Retailers have pledged to close over 3,600 stores since the start of the year, which means closures in 2017 have already exceeded those in 2016 by a wide margin," Fung Global Retail & Technology analyst Deborah Weinswig said in a statement. "We expect more announcements in the coming months, particularly for stores located in lower-grade malls."
Retailers' business models are broken, RBC Capital Markets' Brian Tunick told CNBC during an interview on Friday.
What's happened to stocks lately — the downward trend — "tells you the market doesn't believe a lot of these companies will be around five to 10 years from now," Tunick said.
CORRECTION: This story previously incorrectly stated that children's clothing boutique Gymboree had announced plans to close 350 stores.