Retail Winner and Loser: Costco and Sears

Big-box stores keep siphoning off sales from mall retailers.

By SHARE

The American economy looks a bit stronger than expected with today's upbeat GDP report, but consumer worries are still causing a big rift in retail earnings.

New winners are emerging. Price-conscious big-box stores are the clear leader right now. As the big boxes continue to wrest share away from department stores and malls, the tale of Costco vs. Sears today highlights just how stark a divergence is emerging.

Costco blew past Wall Street forecasts with a 32 percent increase in net income and a 4 percent increase in same-store sales, excluding gasoline sales. Its quarterly earnings of 67 cents a share beat forecasts by 2 cents. Another discounter, Big Lots, which sells close-out merchandise, raised its annual forecasts and posted a 20 percent gain in net income.

Sears Holdings had some surprises, too, especially its quarterly loss of $56 million, or 43 cents a share. Analysts say traffic is fleeing Sears after the company, under the tutelage of hedge funder Eddie Lampert, skimped on store renovations in an effort to cut operating costs just as the slowing economy drove shoppers to discount retailers like Wal-Mart and Costco. Sears's same-store sales fell 8.6 percent. Portfolio.com dubs the continuing Sears disaster "The Lampert Train Wreck." The company's mall-based rivals are faring only slightly better. Last week, Dillard's posted a 94 percent drop in profits, and Macy's and Nordstrom have also seen sales cool.

While it's clear that low-price leaders have hold of the market right now, there's not much your average mid-range retailer can do. A few—Kohl's comes to mind—have a chance to make solid comebacks once the economy improves a bit if they use the downturn as an opportunity to retrench and better their stores. The lesson from Sears should be this: Doing nothing isn't an option.