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Why Target, Gamestop, and Barnes & Noble Shares Have Tumbled in 2017

Some call it the retail apocalypse.

That name reflects the massive turmoil in the sector, where many brick-and-mortar chains have been struggling in the face of ever-growing digital competition. Through the first six months of 2017 Target (NYSE: TGT), GameStop (NYSE: GME), and Barnes & Noble (NYSE: BKS) have all fallen victim to the trend, and their shares have plummeted due to the changing operating environment.

Consumers behavior is changing, which has impacted all three of these retailers in different ways. The underlying theme, though, is that shopping going digital has hurt them all.

Target has been testing new store layouts and sizes. Image source:m Target.

Target is sliding

Shares in the discount store have sunk fairly steadily since the new year began, but they took a further hit when news broke that Amazon (NASDAQ: AMZN) was buying Whole Foods. Target stock closed 2016 at $70.80; it closed on June 30 at $52.29, a 26% drop, according to data provided by S&P Global Market Intelligence.

That share price slide can be traced largely to the company's struggles to hold its ground against bigger rivals including Amazon and Wal-Mart. Though it's the second-largest discount chain in the country, investors are likely wary about the chain's ability to keep up in this evolving marketplace.

Those are concerns that Target is trying to address. The company has begun revamping many of its stores to make them more customer-friendly and has also begun adding more custom merchandise. This includes fashion-forward clothing lines and household goods that have proven popular in initial tests.

Can Barnes & Noble recover?

The bookstore chain has been reeling pretty much since Amazon became a factor in the book business. As a larger share of book sales have moved to the e-book format -- an area where Barnes & Noble has a limited presence with its failed NOOK line -- the chain has struggled to remain relevant.

Even though it has shown signs of stabilizing its business recently, shares remain down for the first half of the year. After closing 2016 at $10.60, they fell to $7.45 on June 30, a 29% drop, according to data provided by S&P Global Market Intelligence.

Barnes & Noble has been making significant changes in search of a workable business model. These have included diversifying its merchandise into specialty toys and niches like vinyl records. It has also been testing serving alcohol in some of its cafes and has experimented with adding full-service restaurants in select locations.

Gamestop has to make big changes

The book market has partially gone digital, but many readers still prefer physical books. But a desire for physical ownership of media may not translate into the video game space, where digital downloads now allow companies to bypass retailers altogether. That's good new for the publishers and consumers, since in theory, by cutting out the middleman, a game publisher could charge less while making more -- but it's very bad news for Gamestop.

That's a slowly developing story, as internet connection speeds and console storage capacities will keep some percentage of game sales in physical discs and cartridges for at least a while. Long term, though, this trend is and will remain a major problem for Gamestop, which saw its shares close at $21.61 on June 30, an 11% drop from the $24.46 where they ended 2016, according to data provided by S&P Global Market Intelligence.

Like the other two retailers discussed above, Gamestop is not sitting idly by while its business goes away. Instead, the company has fought to build its own digital download platform and has expanded into the wireless device business, a niche in which people still tend to shop in stores.

What happens next?

All three of these chains have been struggling for years, not just a quarter or two, and they are all making big changes. Barnes & Noble and Gamestop may survive -- and recent results suggest they will -- but they will emerge from the crisis as smaller companies.

Target's future remains a major wild card. The company has to keep up with two massive competitors in Amazon and Wal-Mart, which will be a serious challenge for a brand that has lost some of its identity and cachet in recent years. The changes the retailer is making to its model and its efforts to improve its digital offering seem promising, but they have yet to be proven out in actual application.

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John Mackey, CEO of Whole Foods Market, is a member of The Motley Fool's board of directors. Daniel Kline has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Amazon and Whole Foods Market. The Motley Fool owns shares of GameStop and has the following options: short July 2017 $24 calls on GameStop. The Motley Fool has a disclosure policy.