The retail sector has been a lagging performer, down 2.5% YTD while the S&P 500 is up 7.4%. It’s not hard to see why: Amazon alone accounts for 28% of the market capitalization of the S&P retail sector. Add Wal-Mart, and the two companies account for 42% of market cap. With Walgreens, three companies account for half of market cap.
There may not be room for a Macy’s, or a Target, or a Sears in the mix. Internet retailing destroys value–for retailers as well as the REITs who own their floor space–by reducing prices and margins.
Today’s retailing bloodbath may denote the turning point for the troubled sector. But the question to ask is: How many other sectors are troubled? How many automakers does the world need? How many manufacturers of integrated circuits? How many computer makers offering the same generic product made of Asian components?