Sales & Marketing
Last Retailer Standing Wins
The current shakeout will boost the fortunes of chains that survive.
By Elizabeth Ody, Associate Editor
From Kiplinger's Personal Finance magazine, April 2009
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Suppose a nosy journalist snooped through your closet today. Naturally, she'd find the latest spring fashions-pulled straight from the racks at Barneys and Neiman Marcus -- displayed on your hangers, right?
If you're anything like most of us, probably not. Retail sales during the Christmas shopping season slipped 3% from the same period in 2007, and the National Retail Federation projects a 0.5% decline in sales for all of 2009. Linens 'n Things, Circuit City, KB Toys and Sharper Image are just a few of the household names that have already succumbed to the hostile climate. Stalwarts such as Home Depot and Macy's are laying off thousands of employees.
But a small number of companies are quietly thriving. Some are big enough to offer the best deals on the essentials, some benefit from the demise of rivals, and others offer products too near to customers' hearts for them to forgo. Add these retail survivors to your shopping list for your next stock-buying spree.
Whales in the pond. Americans are not only buying less of everything, but they're also spending fewer dollars on the items that they do buy. Hence, the big discounters -- Wal-Mart Stores (symbol WMT) towering above the rest-have been scooping up new business with ease. "Consumers will continue to trade down to the lowest-cost retailer, and Wal-Mart is it," says Standard & Poor's analyst Joseph Agnese.
In January, even as most retailers suffered, Wal-Mart posted solid sales growth.
As the world's largest retailer, Wal-Mart can cut costs to keep prices rock-bottom. "It's wrung pretty much every expense out of the business," says Steve Rogé, manager of Rog Partners fund. Although customers may enter a store intending to stock up on groceries or to buy generic prescription drugs for $4, once they're through the doors they'll often shop the general merchandise as well. "People who in the past might have said, 'I would never shop there,' are becoming more open-minded," says S&P analyst Marie Driscoll.Wal-Mart's resilience shows. The company generated $13.6 billion in profits over the 12 months through October 31 (its 2009 fiscal year ended January 31), up 10% from the same period the year before. Its stock was one of only two in the Dow Jones industrial average to rise last year.
Wal-Mart may rule in small towns and suburbia, but Amazon.com (AMZN) reigns supreme online. From its humble roots as a bookseller, Amazon has become the world's largest online retailer, peddling everything from golf clubs to engagement rings to ukuleles. "Amazon is much closer to realizing its vision of becoming a true mass merchant of the online age," says Love Goel, chief executive of Growth Ventures Group, a private-equity firm.
The company is solidifying its place as shoppers' first stop on the Web. Amazon Prime membership, which encourages repeat business by offering customers free shipping for a $79 annual fee, is up 70% from one year ago. And, says Goel, "its customer service is the industry standard."
Recession doesn't seem to be in Amazon's vocabulary. The company reported $19 billion in sales in 2008-a stunning 29% increase from the previous year -- and profits of $645 million, or 36% better than in 2007. Trading at 45 times estimated 2009 earnings, the stock looks frothy. But you could wait a long time if you held out for a better price.
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