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Why Retail Stocks Will Crash -- Even Walmart and Target

WMT Chart WMT data by YCharts

Retail that works has several key things going for it.

First, successful establishments provide unique and/or stimulating environments. The atmosphere draws you in. Makes you feel comfortable. From there, other ingredients enter the mix.

Starbucks (SBUX) injects itself into your daily routine. High-end luxury outfits, such as Tiffany (TIF), keep their products, by and large, exclusive. Lululemon (LULU - Get Report) does the same, but it also bills itself as a lifestyle brand better than anybody else in retail. And, of course, (AMZN) continues to build the most convenient and rewarding one-stop shop ecosystem of loyalty that has ever existed.

It's almost unfair that we come down so hard on Radio Shack and Best Buy for doing none of the above. They're not alone. They're part of a collective failure to act across retail.

Read the writing on the wall for the companies we spare, such as Walmart and Target. What have they done? Added full-size grocery stores to their already obscenely large big boxes. Is this innovative?

These common retail "strategies" might work for a few years, but they're hardly sustainable. Selling produce is akin to booksellers such as Barnes & Noble (BKS) loading up on compact discs back in the day. That worked out real well.

The store-within-a-store concept will fail as well. At Target. At the Barnes & Noble locations that attach themselves to coffee shops. And at the poster child for smoke and mirrors, JCPenney (JCP).

None of these brands have any of the attributes Starbucks, Tiffany, Lululemon and Amazon master. They need something else. They must completely reorganize the way they view the world and take a cue from Chuck E. Cheese's, Dave & Busters and Hooters. Find a gimmick, but make it a legitimate and sustainable one.

In other words, because we no longer have any reason to shop at most brick and mortar retailers, they need to do something to draw us into their establishments. While we're there participating in whatever free or pay activities they can dream up, maybe, if they're lucky, we'll buy some of the stuff they sell.

Best Buy is on the right track; it hired a guy from Starbucks with Silicon Valley blood to run a considerable portion of the show. But don't stop there.

Retail can't stop at thinking like a tech company. Bring in people from Hollywood. The media. Science fiction. NASA. Any industry that can imagine alternative or never-before-conceived futures.

Buybacks. Private equity. Smaller stores. That's not going to stop dozens more retail stocks from crashing like RSH and BBY already have. They need a new drug.

At the time of publication, the author held no positions in any of the stocks mentioned in this article.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
Rocco Pendola is a private investor with nearly 20 years experience in various forms of media, ranging from radio to print. His work has appeared in academic journals as well as dozens of online and offline publications. He uses his broad experience to help inform his coverage of the stock market, primarily in the technology, Internet and new media spaces. He has taken a long-term approach to investing, focusing on dividend-paying stocks, since he opened his first account as a teenager. Pendola, 37, is based in Santa Monica, Calif., where he lives with his wife and child.
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RSH $0.31 12.76%
BBY $31.65 0.13%
LULU $63.41 0.00%
TGT $78.13 0.00%
WMT $67.21 0.00%


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S&P 500 2,050.63 -0.49 -0.02%
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