Dive Brief:

• Retail earnings are on track to fall 6.8% year over year in the first quarter of 2017 — a 7% decline not including retail giant Wal-Mart, according to a Retail Metrics report emailed to Retail Dive. The results are even worse considering they’re against an “easy” comparison of a 2.1% rise in the first quarter of last year: “It has been a cruel [quarter] for the industry,” Retail Metrics president Ken Perkins wrote in the report.

• Barring a miracle, this makes Q1 the worst quarter since industry earnings dropped 7.1% in Q4 of 2013. The quarter’s negative earnings growth would mark the second consecutive negative quarter, the third negative quarter in the last six quarters and the first back-to-back quarterly earnings decline in three years, Perkins said.

• The blame can’t be pinned on the rise of e-commerce alone, according to a separate report from GlobalData Retail emailed to Retail Dive. Consumers are more likely to say that they buy online because it’s “hard to shop stores” (64.6%) and “easy to shop online” (35.4%), GlobalData Retail found. While just 29.3% said they find online retail sites inspiring, a whopping 70.7% find stores uninspiring, according to the report.

Dive Insight:

Store closures and bankruptcies have been rampant in the first quarter, with over a dozen retailers including BCBG Max Azria, Bebe Stores, Wet Seal, Crocs, Game Stop shuttering doors in or out of bankruptcy.

But the gloomy trend doesn't signal wider financial trouble for other industries, Perkins noted in his report. “Retail earnings are headed south while the broader market is expected to turn in its strongest earnings gain since 2011 as the energy sector in particular has rebounded,” he wrote. 

The gap in first quarter projected earnings growth for the Retail Metrics Earnings Index of 113 chains and the Standard & Poor’s 500 now stands at 1,590 basis points (Retail Metrics Earnings Index is -6.8% while the S&P 500 is +9.1%). This translates into the widest earnings growth underperformance since a 1,600 basis point differential in the fourth quarter of 2013, according to the report.

Retail earnings growth topped the S&P 500 for eight consecutive quarters from Q4 2014 to Q3 2016. “Yet, the S&P significantly outperformed retail earnings growth in Q4 2016 and is projected to do so by an even wider margin in Q1, while also being expected to outpace retail in Q2,” Retail Metrics said. “Retailers have managed to top 3% growth just once in the last seven quarters, including Q1.”

Quarterly retail earnings growth has deteriorated significantly over the last decade, with the Retail Metrics Earnings Index averaging quarterly growth of 9.4% year over year from 1999 to 2007. From 2008 to the first quarter of 2017, retailers have averaged just 3.8% year-over-year quarterly growth. “[E]ven when backing out large Great Recession induced earnings declines, retailers averaged 6.9% growth, fully 250 basis points below the 1990-2007 average," according to Retail Metrics. "Looking at just the last six quarters, retailers have managed to generate a meager 1.2% average year-over-year gain.”

The trouble is not so much the rise of e-commerce, though, GlobalData Retail found in a separate report. "[W]hile there is no doubt that online has played a major role in changing shopping habits, it does not bear sole responsibility for the fall in the popularity of physical shops,” GlobalData Retail analysts said. “Physical shops and destinations must, on balance, accept more of the blame because of their failure to evolve and provide the shopping experience people want.”

Across most of the major chains that have lost customers, Amazon sits just outside of the top five retailers that have gained, their report found, while other online specialists, like Wayfair, are even further down the list.