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Retail's rough run: should investors stay away?

  • Retail stocks under pressure as e-commerce rises
  • Some investors say there are still opportunities

It's no secret that it's been a rough run for retail. Rising competition from e-commerce as well as millennials' shifting shopping habits have put pressure on traditional brick and mortar stores.

Data suggests the pain may be far from over – the retail ETF (XRT) is down more than ten percent this year, and Credit Suisse predicts that more than nine thousand stores will close their doors in 2017.

Giant bubbles created by a street artist float past a Zara fashion store.
martin Divisek | Bloomberg | Getty Images
Giant bubbles created by a street artist float past a Zara fashion store.

After speaking to three young women leaving popular clothing store Zara in New York City in late spring, it wasn't hard to see why e-commerce is winning. All three prefer to shop online, citing convenience and style as the primary reasons.

One shopper, Nazia, who came into the store to return something, said online shopping "is convenient, because of delivery." She added that it's often cheaper than shopping in the store. In addition to shopping on her computer, she uses apps on her phone to browse, and she even gets her groceries delivered.

John Lamb | Getty Images

Like Nazia, her friend Sumay – who was also on the Zara trip – prefers shopping online. For her, it's a fashion choice. She prefers smaller stores to the retail giants, claiming style as the reason. "More European," she said.

The third friend, Francine, works at one of the major department stores. Surprisingly, despite her job, she barely shops at brick-and-mortar stores. Like Sumay, Francine looks for a more individual experience when shopping. She noted that the larger department stores aren't as trendy as the boutique experience.

But not everyone believes the retail wreck is here to stay. Jim Lebenthal, partner at HPM partners and a CNBC Halftime Report contributor, still believes in some of the retail stocks even as shoppers flock online. He thinks that if you make the right buys at the right time there are still ways for investors to profit from oversold stocks in the sector.

He did acknowledge however, that "brick and mortar retail is heavily challenged right now." One of his holdings– JC Penney – is down more than 42% so far in 2017.

Lebenthal also has a bullish outlook on retailers that are specifically targeting millennials.

"Brick and mortar retail is not going to vanish entirely, there will be winners who survive," he said. "I think we all have painted the millennials with abroad brush stroke, and that broad brush stroke is defined by the financial crisis and the great recession, which dramatically impacted their ability to form households and families, and do the traditional shopping that people have done," he added.

Another Halftime Report trader, Pete Najarian, takes the other side.

"I think the retail world is so fickle, that when you have put yourself in the box of being in a bricks and mortar, your inventories alone become a real problem, and the way the millennials do spend and they change their opinion so frequently on everything, they could have a great product at the beginning of the season, and be stuck with too much product line, and it's killing these guys," he argued.

That said, Najarian does see one bright spot for traditional retailers – those who are growing their online presence. Despite selling his Nordstrom position in early June, Najarian believes the store "is doing very well because of their off brands and because their online presence continues to grow."

Najarian also credits Nordstrom's website and the company's mobile app for bringing in customers and keeping them.

Roberto Machado Noa | LightRocket | Getty Images

Department stores aren't the only battleground between brick and mortar stores and e-commerce. Specialty stores like L Brands and Dick's are also in the crossfire. And if Wall Street is a true indicator of how these stores are doing, the fight isn't going well for the retailers. Both L Brands and Dick's are down more than 20 percent so far this year.