Recession-proof Dollar Store and discount store
Analysts say these retailers won't lose in an economic downturn because consumers will want to, or have to, shop at them.
W YORK (CNNMoney.com) -- There's no arguing that retailers have to strap in for a very tough 2008. But it won't be gloom and doom everywhere.
Analysts say consumer
frugality during tough economic times can actually be a boon for some merchants.
"When you're not making
more real dollars, the only other option (for consumers) is to control
expenditures," said Stevan Buxbaum, analyst with consulting firm Buxbaum Group.
One way to save money is by
what retailers call "trading down."
This means that more
mid-income Americans will try to stretch their dollar by migrating to discount
stores, value-priced retailers and wholesale chains in the months ahead.
Such activity will benefit discounters and wholesale outlets, including Wal-Mart , Costco and BJ's Wholesale Club
Buxbaum said.
To his point, Wal-Mart and Costco recently reported
same-store sales.
Same-store sales are an
important retail metric that measure sales at stores open at least a year.
However, Wal-Mart's rival Target isn't getting the same boost to its business and of weaker sales this month
"Target performance is a
good example of why we have to be careful of predicting that an entire segment
will do well," said Love Goel, chairman and CEO of Growth Ventures Group, a
specialty retail private equity firm. "Our view is that there are individual
retailers that will outperform in each segment."
He said Wal-Mart has done
better than Target in recent months because it sells more low-cost staples such
as toothpaste, detergent and groceries.
"More than 50 percent of
Target's sales come from apparel and home goods. Softlines are higher margin
goods but the category is taking a hit in this environment," Goel said.
Still, Buxbaum spotted a potential recession-proof seller ok among clothing chains in teen specialist Aeropostale
Aeropostale is the price
leader in the teen space. That's why it had a double-digit (percentage) sales
jump over the holiday season," Buxbaum said, adding that consumers traded down
to Aeropostale from Abercrombie & Fitch and American Eagle Outfitters.
Rebate No big deal for stores.
"Americans love their pets.
Pets have to eat. The problem [for retailers] is that people don't have to buy
other accessories like a fancy collar. But accessories are where the profit
margins are," Buxbaum said
Experts say pet stores - among them, Petco
will probably continue to
generate sales volume but their profits will contract.
And cash-strapped parents
will dig deep to buy birthday toys for their children no matter what.
"You just can't explain to
a 4-year-old that he won't get the toy he wants because there's a recession,"
Buxbaum said.
However, Goel expects some
trading down in how consumers buy toys. He said parents would likely head to
Wal-Mart or Target for better prices and only head to specialty toy stores for
hard-to-find products.
Analysts also expect quick-service restaurants such as McDonald's
and Wendy's to withstand a
recession-inspired spending pullback as families pick more affordable fast food
over pricier menus in casual dining chains.
To that end, Buxbaum said
McDonald's "Dollar Menu" is ideal for the frugal customer.
Goel is betting that a
recession won't stymie the surge in online sales.
"Online sales will continue
to grow as consumers surf the Web for better deals," he said.
But analysts are divided on
the outlook for luxury sellers. Sales of luxury items held steady for most of
2007, partly buoyed by a weak dollar that attracted dollar-rich tourists to the
United States to bag high-end bargains.
"The luxury sector has seen
some [sales] softness over the last three, four weeks but we think luxury will
rebound," Craig Johnson, president of retail consulting group Customer Growth
Partners.
Johnson cited a CEO from a
leading high-end chain as saying that the retailer's customers weren't suddenly
running out of money, but instead blamed negative headlines about a recession
for forcing customers to rethink that extra purchase.
Goel wasn't convinced.
"I had a feeling that
luxury was immune from a recession, but now I'm not sure," he said, citing a
profit warning from Tiffany earlier this month.
"Luxury sellers are beginning to feel the pinch," he said. Worse, he said this week's global market selloff would likely result in a pullback among overseas shoppers as well.