2022: Year of plummeting retail valutions

Year 2022 was a challenging year for retail valuations. Especially ecommerce companies saw severe declines in their valutions. The overall mood of the stock markets was reflected to all retail stocks.

Of the world’s most valuable retail companies Amazon, Target, Lululemon and Alibaba saw biggest drops in valuation. Amazon’s valuation declined a whopping 55% from December 2021.

For Amazon the drop means that the pandemic induced valuation jump has been deflated from the share price. Currently Amazon is valued rather close to the 2018 & 2019 levels. One must remember that Amazon operates 50% bigger business in terms of revenues.

These drops in market capitalisations are not so much illustrative of the poor business performance than changing expectations from the investors.

Target did suffer seriously from the inventory glut and their rapid response to the inventory reductions. It remains to be seen whether the drastic actions turned out to be beneficial for the fourth quarter.

Walmart did take different route with the inventory reductions. In the short term that seemed to be the right decision. On the other hand, one must remember that Walmart is benefiting from the high share of groceries in their revenue. Groceries have a high turnover of inventory and they have been performing better than non-food products during high inflation.

Of the 50 most valuable retailers, only 11 companies were able to grow their market capitalisation from a year ago. There does not seem to be one common theme to explain the succesful companies. Food retailing and price focus seem to be important determinants.

Kroger is somewhat of an outlier as they are not price-led retailer. Their valuation might be inflated by the expectations of a possible merger with Albertsons. However, Albertsons has seen its valuation plummet by -30%. Maybe that is one indicator why the two companies are looking to join forces?

Albertsons’ share price had been declining from the highs of $36 per share in March to $26 per share right before merger announcement in October.

The threat of price-led retailers is seems to loom for many big grocers. Of the big grocery chains Ahold-Delhaize saw market cap decline by -18%, Tesco -33%, Woolworths -17%, Aeon -11%, Carrefour -13%…

If the German discounters Lidl and Aldi were publicly listed companies, one can only wonder how much their valuations would have risen.

Less surprisingly the biggest declines were dominant by ecommerce companies flourishing in the pandemic restrictionas. Companies such as Wayfair, Zalando, Amazon, Coupang and Alibaba have seen big declines.

On the other hand, some very traditional retailers, such as Tesco, H&M, Macy’s and Target have also seen big declines in valuations.