Retail wreck: department store stocks sell off

Wall Street witnessed a retail wreck Thursday as investors dumped shares of brick-and-mortar department stores after weak holiday sales, store closings and warnings of lower profits in the future. The plunging stock prices accentuated just how damaging the ongoing shift to online shopping has been on traditional retailers that operate out of malls.

The biggest loser was Kohl's (KSS), which saw its shares plunge nearly 20% after the department store said sales in November and December fell 2.1% from a year ago and it was lowering its earnings projections for the year. Macy's (M) also got clobbered, selling off by more than 13% after it said holiday sales fell shy of expectations and it was closing 68 stores and cutting more than 6,000 jobs to confront what CEO Terry Lundgren said in a statement was a necessary move due to "declining traffic in our stores where the majority of our business is transacted."

Sears Holdings (SHLD) also felt the brunt of the changing retail landscape, which is moving toward shoppers who prefer buying stuff online with a simple click on their personal computers, tablets or mobile phones. Sears, which has been under financial duress for years, said Thursday that it is closing 150 stores, including 108 Kmart locations, as well as selling off its Craftsman brand of tools to Stanley Black & Decker in a deal valued around $900 million. The moves, however, pushed Sears shares 4.3% higher.

Is your local Sears or Kmart among 150 stores to be axed? See the list

The pain felt in the department store space dragged down a broader measure of retail stocks. The SPDR S&P Retail ETF (XRT) was down more than 3% in Thursday afternoon trading.

Other retail stocks that took a hit, included department store Dillard's (DDS), which fell nearly 12%, J.C. Penney (JCP), which cratered 6.5%, and Nordstrom (JWN), which fell nearly 9%.

Retailers that operate from stores at malls and other shopping centers have not moved quickly enough to combat the competition from online retailers like Amazon.com, says Kate Warne, investment strategist at Edward Jones.

Stanley Black & Decker to open U.S. plant after Trump's 'border tax' threat

"The (brick-and-mortar retailers) are trying to prepare for a bigger shift to online and digital selling but they haven’t caught up with how quickly consumers are shopping online versus the mall," says Warne. "(Poor holiday sales) reflects the shift of people sitting at home ordering online."

In a sign of consumers' changing shopping habits, shares of online retail giant Amazon.com (AMZN) rose 2.3% Thursday.

Investors sold off shares of brick-and-mortar retailers because their businesses are contracting not growing, a trend that Wall Street despises, adds Warne.

Warne adds that the closing of unprofitable stores will eventually result in a "rightsizing" for the department store chains that will make the stocks attractive again, albeit at lower prices.

Department stores become endangered as Sears, Macy's struggle

"But in the short term investors will be disappointed as business results continue to fall below the more optimistic hopes that (store-focused) retailers continue to stick with," Warne says.