UBS: Sell Kohl's, Macy's, Buy "Go It Alone" Brands

COVID-19 has done more damage to department stores like KSS and M than the market realizes, forcing brands to set themselves apart.

Macy's Customer
(Image credit: Getty Images)

UBS on Tuesday issued downgrades for retail stocks Macy’s (M (opens in new tab), $6.80) and Kohl’s (KSS (opens in new tab), $22.33), but in so doing also laid out the new operating blueprint for fashion brands.

"To deliver steady long-term growth, we believe brands can no longer rely on Malls or Dept. Stores to drive traffic," a UBS analyst team led by Jay Sole writes. "Brands have to generate their own audiences and become destinations."

"Premium" brands should be able to operate in a virtuous cycle that help them at the top of the retail food chain:

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  • A strong value proposition earns high gross margins.
  • High gross margins help a company build a successful direct-to-consumer operation.
  • A strong DTC business lets brands better control inventory and their own brand image.
  • Customer loyalty follows, driving strong returns.
  • The company can then reinvest those returns to keep the cycle moving.

UBS pinpoints eight Buy-rated stocks it thinks can pull off what it calls a "Go It Alone" model:

  • Nike (NKE (opens in new tab), $98.36), $127.00 PT
  • Levi's (LEVI (opens in new tab), $12.15), $23.00 PT
  • Skechers (SKX (opens in new tab), $29.60), $32.00 PT
  • American Eagle (AEO (opens in new tab), $10.35), $14.50 PT
  • PVH (PVH (opens in new tab), $49.02), $107.00 PT
  • Capri Holdings (CPRI (opens in new tab), $16.31), $26.00 PT
  • Canada Goose (GOOS (opens in new tab), $22.63), $30.00 PT
  • Deckers Outdoor (DECK (opens in new tab), $201.30), $250.00 PT

Indeed, Nike on Wednesday made several changes to its senior leadership team (opens in new tab) to "support the company's Consumer Direct Acceleration (CDA)" as the athletic apparel company continues its shift to a more direct-sales-focused strategy.

UBS also initiated a few stocks at Neutral, saying "we lack lack conviction these companies will be able to 'Go It Alone' in the future."

  • Crocs (CROX (opens in new tab), $35.83), $40.00 PT
  • Gildan Activewear (GIL (opens in new tab), $16.81), $16.00 PT
  • Steve Madden (SHOO (opens in new tab), $22.34), $23.00 PT
  • Kontoor Brands (KTB (opens in new tab), $17.42), $20.00 PT

As for Macy's and Kohl's, the thesis is no surprise. While Wall Street's outlook on department stores wasn't high in the first place entering 2020, the COVID-19 pandemic has swiftly eroded their businesses and accelerated online buying trends. It has also slammed their stocks: KSS is off 56% year-to-date; M stock has lost a flat 60%.

Importantly, UBS says that they're not factoring in the same comeback in retail that much of the market seems to be.

"Our conversations with investors suggest many are already bearish on Department Stores," Sole's team writes. "However, most think FY21 will be a rebound year as the pandemic ends. While we agree the pandemic ending will help, we don't think it will get Department Store earnings close to FY19 levels.

UBS's analysts see Macy's stock declining to $3.00 per share (~56%) over the next 12 months or so, and Kohl's stock falling to $14.00 (~37%).

Kyle Woodley
Senior Investing Editor,

Kyle is senior investing editor for As a writer and columnist, he also specializes in exchange-traded funds. He joined Kiplinger in September 2017 after spending six years at, where he managed the editorial staff. His work has appeared in several outlets, including U.S. News & World Report and MSN Money, he has appeared as a guest on Fox Business Network and Money Radio, and he has been quoted in MarketWatch, Vice and Univision, among other outlets. He is a proud graduate of The Ohio State University, where he earned a BA in journalism.