What happened?

After it was announced that teen-apparel retailer Abercrombie & Fitch (NYSE:$ANF) terminated its sales deal with potential buyers, the company’s stock fell by 21.1%. However, it wasn’t just Abercrombie & Fitch itself that responded badly to the news – shares of Gap, Inc. (NYSE:$GPS), Kohl’s (NYSE:$KSS), and Macy’s (NYSE:$M) have all fell in response to the  Abercrombie news.

Gap’s shares went down by 6.3%, while Macy’s fell by 7.1% and Kohl’s saw a 4.2% drop.

So what?

Although a number of retail companies have struggled lately, several were able to receive buyouts, like Whole Foods (NASDAQ:$WFM) and Staples (NASDAQ:$SPLS). For clothing retailers, it’s a different story. Abercrombie’s announcement today of no longer looking for a buyer suggests that there was a lack of interest in the teen-apparel retailer as well as other similar retailers. Abercrombie CEO Arthur Martinez stated that the best way to proceed now is to execute the company’s business plan with rigor.

While there has been no specific news regarding Gap, Kohl’s, or Macy’s, these retailers share these similarities with Abercrombie: mid-market apparel retailers, many brick-and-mortar locations in malls, and a decline in traffic in these locations. As well, like Abercrombie, all three retailers are also seeing a decline in sales and pressure as many consumers take to e-commerce to fulfill their shopping needs.

However, one thing does set Gap, Kohl’s and Macy’s apart from Abercrombie: the three retailers are still profitable. Still, the long-term future of these three companies remains quite uncertain as sales continue to decline. With Macy’s recent announcement of 68 store closures, Gap’s 65 shutdowns, and Kohl’s 19, the future doesn’t seem very bright for these companies.

Now what?

Abercrombie’s decision to stop looking for a buyer is a quite a lesson for retailers: they can’t expect another, more powerful company to step in and save them. This may be quite daunting for several struggling retailers – already, more than 300 retailers have filed for bankruptcy this year. Of the 300, there were several clothing retailers, like Wet Seal, The Limited, Gymboree, Rue21, and Payless ShoeSource.

That is not to say that no company showed interest in acquiring Abercrombie – according to The Wall Street Journal, the teen apparel attracted several retailers and private-equity firms but Abercrombie failed to reach an agreement with any buyers because of low asking prices.

As Abercrombie struggles to survive in the changing retail industry, Gap, Kohl’s and Macy’s are all facing declining sales. Macy’s comp sales fell about 4.6% according to its first quarter results in 2017. Earnings per share fell from $0.37 to $0.23, with the company expecting some more tumbles this year. Kohl’s, on the other hand, has dealt with its sales decline better than Macy’s by cutting back on growth costs. While comp sales fell by about 2.7% according to its first quarter results in 2017, the company’s earnings per share went up from $0.31 to $0.39. Gap is the only retailer out of the three that saw an increase in comp sales in its first quarter results in 2017 – a full 2%. 

Overall, even though Gap, Kohl’s and Macy’s aren’t bad compared to Abercrombie, the reaction their shares saw after Abercrombie’s news shows just how sensitive the retail industry now is. As retailers continue to struggle through what many has now deemed the “retail apocalypse”, investors are expected to see some continued problems for these three retailers.

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