Ecommerce has put retail at a 'watershed moment,' Credit Suisse says.

Continued declines in foot traffic, moderating asset sales and recoupling credit card income paired with downward sales trends are cause for ongoing concern in the retail industry for Credit Suisse analysts ahead of second quarter results from J.C. Penney (JCP - Get Report) , Nordstrom (JWN - Get Report) , Kohl's (KSS - Get Report) and Macy's (M - Get Report) this week.

Department store sales have improved sequentially, but will likely remain down 8% year-over-year in the second quarter, analysts wrote in a Tuesday note. Comp sales are set to improve from the first quarter, down 2.8% in Q2 year-over-year versus 4.3% in Q1 year-over-year.

Amid declining returns, stores have closed or shrunk to rationalize square footage. Though Credit Suisse says this is a positive, the return on equity for department stores shrank to its lowest level since 2000 at 7.8% in 2016. Net income has gotten weaker, too, with the overall average down 42.6%.

Ecommerce has continued to add pressure on department stores, putting retail at a "watershed moment" this year. Credit Suisse said ecommerce has the potential to explode to 37% of total softline sales by 2030, up from 18% in 2016.

Credit Suisse said it prefers Nordstrom for its class-leading ecommerce and off-price investments. Despite its weak topline, Kohl's could reap some near-term benefit due to its downsized selling areas. Macy's will struggle to turn around its margins given continued spending on digital.

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