Everyone loves a comeback story. But the retail sector is one area where you shouldn't count on one.
Investors might point to Target as evidence of one: The company finally appeared to start hitting the mark in 2026 after years of underperforming sales and whose stock has soared this year. While its turnaround might finally be gaining traction, it's too early to confirm it is a success. In fact, history suggests that chances of a true rebound are slim.
Ultimately, comebacks in retail are few and far between, Bernstein writes in a new analysis of the sector's pivots over the past century.
That may not bode well for Nike and Lululemon Athletica, former investor favorites whose sales have disappointed lately. Their current issues show even the largest names aren't immune to retail's constant state of flux.
"Retailers serve an ever-changing consumer, forcing them to constantly adapt their business models," writes Bernstein analyst Zhihan Ma. Her analysis found that the most nimble companies who can disrupt themselves are the most likely to survive on the long run.
"Our review of a century of retail history, bankruptcies, turnarounds, international expansion efforts, and retailers' responses to the omnichannel revolution reveals a simple but powerful lesson: no retail advantage is permanent," Ma writes.
Disruption is a code word for tech, and, these days, for artificial intelligence, but it's nothing new. Just like department stores, big box retailers, and e-commerce before it, agentic AI is a challenge to the established order that can reshuffle the decks. Because the top isn't only a lonely place, but a slippery one: No retailer can remain dominant forever without putting in plenty of legwork.
Looking at more than 100 bankruptcies over the past 25 years show that disruption is often the problem that first trips them up, Ma writes. Management errors compound the problem.
"At the end, it usually takes a recession, increased leverage, or fraud in some cases to put the final nail in the coffin," she writes. "Successful turnarounds are rare."
Survivorship bias -- in which companies that are successful are more memorable -- explains why investors feel more confident that comebacks happen more often than they actually do. For every success story like Best Buy, which bolstered its customer service and price competitiveness under CEO Hubert Joly, there are retailers that disappeared. Think Lord & Taylor, Blockbuster, Borders, RadioShack, and Rite Aid. Time could show that even Best Buy's rebound was only temporary.
The reality is that the list of the nation's largest retailers is likely to change over the next decade. Ma says that Walmart, Amazon.com, Costco Wholesale, and Home Depot are likely to stay, but others like Target and Best Buy might not, if fewer people prefer shopping in store for things like clothes, home goods, and electronics.
She says Walmart is best-positioned for the age of agentic AI, because of the company's early e-commerce acquisitions and investments that has allowed it to build up a huge online marketplace today -- as well as its dedicated e-commerce fulfillment centers with automation capabilities, which Barron's highlighted back in 2023.
By contrast, "Costco is clearly a laggard in embracing e-commerce and technology investments...[and[ will need to play catch up over time," she writes. The company, however, remains more insulated for now given members' enjoyment of the in-store treasure hunt. Its high quality consumer data and the ability to advertise across categories beyond traditional retail (travel, optical, etc.) also bolsters her belief that it can successfully pivot and grow its advertising business.
As the poem goes, nature is red in tooth and claw, and retail is just as ruthless: Even the biggest players have to evolve or perish.
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