Six Retailers That Are Thriving
Some are big enough, some are benefiting from their rivals' demise, and some offer must-have items.
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.
![https://cdn.mos.cms.futurecdn.net/hwgJ7osrMtUWhk5koeVme7-200-80.png](https://cdn.mos.cms.futurecdn.net/hwgJ7osrMtUWhk5koeVme7-320-80.png)
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
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 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 (symbol WMT) can cut costs to keep prices rock-bottom. "It's wrung pretty much every expense out of the business," says Steve Rogé, manager of Rogé 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 reigns supreme online. From its humble roots as a bookseller, Amazon (AMZN) 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.
Bankruptcy beneficiaries. In the long run, the winners in retailing will be those that can emerge from the recession with a bigger piece of the pie. So the demise of Circuit City and Linens 'n Things can only be a blessing for Best Buy (BBY) and Bed Bath & Beyond (BBBY).
Best Buy stands to expand its share of the consumer-electronics market (about 21% today) as Circuit City liquidates its 567 U.S. stores. Chief executive Bradbury Anderson has hinted that Best Buy may purchase some former Circuit City locations, if such a move doesn't undermine the company's financial position.
The electronics giant hasn't been immune to the recession. December same-store sales (sales at stores open at least one year) fell 7% from the same month in 2007, so management plans to slash capital spending by 50% in 2009.
You might wonder why Bed Bath & Beyond will fare better than Linens 'n Things. The big difference: Linens, which had been taken private in a leveraged buyout, perished under an unmanageable debt load, while Bed Bath & Beyond doesn't owe a cent. "In retailing, the mantra right now is 'Balance sheet, balance sheet, balance sheet,' " says Don Wordell, manager of RidgeWorth Mid-Cap Value fund.
But there's more to Bed Bath & Beyond than a squeaky-clean balance sheet. A decentralized decision-making model, which allows managers broad discretion over what their stores stock, helps the company squeeze more sales out of each square foot of retail space than competitors do. And 57% of the chain's locations are within 10 miles of a former Linens 'n Things.
Must-have purveyors. Then there are those coveted items that shoppers will find a way to buy, recession or no recession. Edgy apparel retailer Urban Outfitters (URBN) is as close as you'll come to a recession-proof clothier. For the fiscal year that ended January 31, the company reported that same-store sales were up 8% over the year before, and revenues were up a whopping 22%, to $1.8 billion.
Smart management and limited store growth have preserved the hip mystique of Urban Outfitters' brands, and the teen-through-thirtysomething customers the stores serve keep coming back. The company offers brand-name clothes, accessories and home furnishings alongside its own private-label items in its three chains: Urban Outfitters, which accounts for 50% of sales; Anthropologie, 40%; and Free People, about 10%. "Urban Outfitters knows how to merchandise really special things," says Driscoll.
This recession has felled century-old financial institutions, led to millions of job losses and cost future U.S. taxpayers trillions of dollars. But it hasn't yet come between kids and their video games. At least that would help explain the bang-up results at GameStop (GME.
GameStop is something of a benchmark for the video-game industry because it sells game consoles of all makes and models, plus new and used games. Its used-game business has been the biggest driver of growth in recent months, in part because gamers can trade in used games for store credit. And Game-Stop's gross profit margin of nearly 50% on used games is nothing to sniff at. "GameStop makes more selling $30 worth of used products than it does selling $60 worth of new products," says Janney Montgomery Scott analyst Tony Wible.
The company managed to boost profits by an eye-popping 55%, to $368 million, over the 12-month period that ended October 31. At that rate, Wible says, GameStop could be holding $1 billion in cash by the end of 2009, which it could use to buy back large chunks of its stock.
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
-
Visa Is the Worst Dow Stock Wednesday. Here's Why
Visa stock is down sharply Wednesday after the credit card company came up short of revenue expectations for its fiscal Q3.
By Joey Solitro Published
-
Another Analyst Moves to the Sidelines on Tesla Stock After Earnings
Tesla stock is spiraling Wednesday after the EV maker's big earnings miss and Wall Street has been quick to weigh in. Here's what you need to know.
By Joey Solitro Published
-
Stock Market Today: Stocks Tumble on Disappointing Big Tech Earnings
Poorly received quarterly results from Alphabet and Tesla sparked a steep selloff in equities.
By Karee Venema Published
-
Stock Market Today: Mega-Cap Tech Rallies to Drag Markets Higher
Markets focused on upcoming earnings from Magnificent 7 stocks rather than chaos in D.C.
By Dan Burrows Published
-
Stock Market Today: Stocks Tumble After Spectacular Global Internet Crash
Market participants rushed out of risk assets to end a wild week of trading.
By Dan Burrows Published
-
Stock Market Today: Dow Sinks 533 Points as Big Banks, Mega Caps Slump
Goldman Sachs and Apple were two of the worst-performing blue chip stocks on Thursday.
By Karee Venema Published
-
Stock Market Today: Semis Get Slammed and Blue Chips Bounce
The potential for more curbs on tech sales to China set off a rotation into blue chips.
By Dan Burrows Published
-
Stock Market Today: Dow Spikes 742 Points After UnitedHealth Earnings
The S&P 500 and Nasdaq also scored wins Tuesday albeit with much smaller gains than the blue chip Dow.
By Karee Venema Published
-
Stock Market Today: Dow Adds 210 Points as Apple, Goldman Hit New Highs
A big rally in blue chips and some dovish Fed speak boosted the equities market Monday.
By Karee Venema Published
-
Stock Market Today: Markets Bounce Back on Rate-Cut Optimism
The latest readings on consumer sentiment and inflation helped lift the odds of the Fed easing in September.
By Dan Burrows Published