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Increasing online sales are killing traditional retailers. Nowhere is that more evident than with Sears stock.
In the last two years, Sears stock has dropped more than 78%, during a time when the Dow climbed nearly 14%. And while many investors were fleeing Sears stock, we found a way to bank 75% profits when the stock was crashing.
Before we get into that profit play, here's a closer look at the full Sears stock decline…
Why Sears Stock Is Still in Trouble
Just think about how smartphones have changed shopping. You can try on a pair of shoes at a physical store and then do a quick search on your smartphone to see where they are the cheapest. From there you can either purchase them at that location or buy them online and have them delivered to your home.
This assumes you even go to the store in the first place…
Given that e-commerce sales account for nearly 25% of all retail purchases, it is likely you don't go to the store to check out all of your purchases before you buy. E-commerce has been growing about 15% a year since 2010, and this trend is expected to continue.
This shift is a major part of why Sears Holdings Corp. (Nasdaq: SHLD) has been in trouble for years.
The company has not been profitable since 2010 and lost $1.6 billion in the first nine months of 2016. The holiday season is not helping Sears, either. Same-store sales fell about 13% during the holiday shopping season from the same time period the previous year.
Sears' credit rating was downgraded from Caa1 to Caa2 (both ratings are at junk-bond levels) by Moody's Investor Service on Jan. 20. This will make it harder to refinance the company's $4.46 billion in debt if it would need to.
"The once iconic American retailer badly misjudged the shift to online shopping and away from traditional retailing that had been its domain almost exclusively since 1893, when it was founded," said Money Morning Chief Investment Strategist Keith Fitz-Gerald.
The latest effort to keep Sears afloat happened two weeks ago when the company sold its Craftsman line to Stanley Black and Decker for $900 million. It is not likely to work.
"Have you been in a Sears lately? I have. The parking lot was empty, the shelves in disarray, and the clerks (if you could find one) were clearly unimpressed by what's happening. It was about as depressing a shopping experience as I've ever had," Fitz-Gerald said.
The depressing shopping experience is partly why the company has closed 2,500 stores over the past six years. The closures will continue in 2017 with 150 more Kmart and Sears stores set to close.
All of these reasons are why the stock is down 78%. However, we were ahead of the downward spiral of Sears stock and were able to profit from it…