Tariff pressure is expected to take a toll on some retailers, and with a slew of companies from that group reporting earnings this week, it could be time to consider the ProShares Decline of the Retail Store ETF (EMTY).
The Decline of the Retail Store ETF provides daily short exposure or -1x to the new Solactive-ProShares Bricks and Mortar Retail Store Index, which is comprised of traditional retailers and equally weights components. The fund holds companies including department stores, supermarkets and sellers of apparel, consumer electronics and home improvement items, such as retailers like Barnes & Noble, The Gap, Macy’s, Kroger and Best Buy, among others.
Many brick-and-mortar retailers are dealing with store closure and facing headwinds created by the disruption of online retail. Rising inventories aren’t helping.
“There’s ‘mounting evidence’ that stores have ‘significantly lowered their inventory receipt plans ahead of holiday 2019,’” Credit Suisse analysts led by Michael Binetti wrote in an Aug. 8 note.
The analyst pointed out that most of the footwear and apparel space still has 10% to 15% of U.S. goods coming from China.
“Companies can’t price quickly, adding risk to C2H estimates before tickets can be reset in 2020,” Binetti said.
Bad News Is Good News for EMTY
As an inverse ETF, EMTY is built for an environment that challenges retailers, including apparel sellers and department store operators, groups that combine for a third of the fund’s underlying index. EMTY is up more than 6% just this month.
“And store cost structures will be under even more near-term pressure, with broad new tariffs on goods from China expected to kick in next month,” according to Bloomberg.
Shopping and consumer trends are changing as more buyers rely on the convenience of online retailers to quickly and effectively meet their discretionary needs. As the retail landscape changes, investors can also capitalize on the trend through ETFs that target the e-commerce segment.
“Physical retailers are under immense pressure. E-commerce is threatening to take over retail as consumer habits change, shopping moves online, and physical stores struggle to remain viable. With this disruption comes opportunity,” according to ProShares.
For more thematic investing strategies, visit ETFdb.