The holidays are right around the corner, and some of retail's biggest names are being called out by Wall Street.
Macy's and J.C. Penney were both downgraded by Citi Research on Monday, to sell from neutral ratings.
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Citi analyst Paul Lejuez is calling for "another promotional holiday season" ahead for an already challenged department store industry. Too many deals and discounts throughout the November and December months could eat into company profits if retailers aren't able to rack up dollars elsewhere.
Macy's shares were falling more than 5 percent by Monday afternoon on the news, while Penney's shares were trading 10 percent lower. Retail rivals Sears, Kohl's, Nordstrom and Dillard's were also each dipping lower, dragging the S&P 500 Retail ETF (XRT) down with them.
"In an environment where consumers are increasingly turning to Ecom, and where department stores are selling 'other people's stuff' that can often be bought elsewhere, we believe the company needs to have far fewer locations," Lejuez wrote in a note to clients about Penney's.
Penney's has already announced 140 store closures in 2017, hoping to improve liquidity, but some analysts are saying it won't be enough.
"In the current retail environment, we believe department stores are structurally disadvantaged to win," Lejuez said. "Risks continue to mount."
Just last week, Penney's shares tumbled more than 20 percent when the company trimmed back its 2017 profit and comparable sales forecasts, blaming heavy discounting — particularly on women's apparel — ahead of the holidays.
"While we acknowledge the positive work JCP is doing to become less apparel reliant (with initiatives like the expansion of home, appliances, beauty, and salon) the sector faces intense secular headwinds as mall traffic wanes and the shift to e-comm should also continue to weigh on profitability," Jefferies analyst Randal Konik said about the announcement.
The disappointing full-year outlook from one department store chain didn't bode well for the rest of the industry, either.
Evercore ISI analyst Omar Saad called Friday's news a "negative" for J.C. Penney's peers, and he's also concerned that a warmer winter across the U.S. could spell doom for department store's coat sales.
Meantime, America's department stores are trying to lure shoppers in this holiday season. Each company has a strategy of its own.
Kohl's, for example, has inked a deal with e-commerce giant Amazon to both sell some of Amazon's tech products and accept Amazon returns in a handful of Kohl's stores.
Sears, in a nostalgic move, is bringing back its iconic holiday catalogs.
Nordstrom, which has fared better on the stock market than all of its peers excepts for Kohl's this year, is betting bigger on its off-price Rack division and testing a smaller store format without inventory.
"They're in trouble," Vicki Howard, author of "From Main Street to Mall: The Rise and Fall of the American Department Store," said in an interview about U.S. department store chains. "Their demographic is aging ... they haven't made themselves relevant to younger markets."
"I'm not saying retail is dying," Howard added. "I think it's definitely changing."
WATCH: Citi downgrades Macy's to sell
