Retail Stars of the Recession

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Joe Raedle / Getty

Shoppers in a North Miami, Florida Costco.

By now you've read all about the combined woes afflicting the economy: the credit crunch, the subprime mortgage crisis, the housing slump. Things are bad out there, especially when the Federal Reserve has to intervene and rescue the financial markets from chaos, helping JPMorgan Chase buy collapsing investment bank Bear Sterns for a mere $2 a share. But even in the toughest times, some businesses and banks come out on top.

Enter retail. It's certainly not rosy in retail-land: The Sharper Image, Lillian Vernon Crop and Bombay Company have all declared bankruptcy. Ann Taylor announced the phaseout of 117 of its 921 stores over the next three years and Liz Claiborne is shutting down 54 Sigrid Olson shops this year. Talbots streamlined 22 more stores in addition to the 78 it already had announced while also ending Talbots Mens and Talbots Kids. The International Council of Shopping Centers forecasts that store closings could reach 5,770 this year — the highest since 2004.

But for the right retailers, today is a time of great opportunity. "Right now a scary place to be is in the middle," says Christine Chen, retail analyst at Needeman & Co. "If you have your product right, you want to be high-end or value."

Here's a look at some retailers predicted to sail easily over the bumpy financial seas ahead:

Wal-mart: The Bentonville, Arkansas-based chain is doing better than Target for the first time in eight years. Why? Target is known for its home furnishing and apparel departments, two sectors that are not faring well in this economic downturn. Wal-mart, on the other hand, does better with sales of food and nondiscretionary items, which continue to perform solidly. The mega-store is going back to its roots, marketing itself as the place to get the best deals on everyday items. Its February same-store sales were up 2.6% compared to last year. Who wouldn't want to pay less for light bulbs and pens?

Urban Outfitters and Anthropologie: Two bright spots in mid-priced retail are these sister stores. Both are thriving by investing in competent employees and offering a good mix of merchandise people won't find anywhere else. "They have a unique display selection and a director in every store," says Howard Davidowitz, Chairman of Davidowitz & Associates, a national retail consulting and investment-banking firm.. "No other store looks like them." The catchy windows draw people inside. The funky clothes sell themselves. Chen of Needham & Co. flagged Urban Outfitters as one of the best growth stories in the specialty retail space this month.

Costco Wholesale Corp: Wholesale clubs are doing well in this tough economy because their very existence is synonymous with penny pinching. Costco, the nation's largest warehouse club, is considered the best deal in town and, as the biggest wine retailer in the U.S., it attracts a more affluent customer than Sam's Club or BJ's. Robust sales and cost cutting increased the company's quarterly profit 31%, with February sales up 7% over last year. "They have a treasure hunt atmosphere in their stores," says Davidowitz. "They offer constant newness and incredible value."

Walgreens: Drugstores have stopped their decline among all income groups, by reclaiming customers looking for cosmetics, skin care and over-the-counter drugs, according to WSL Strategic Retail's How America Shops 2008 survey. Walgreens leads the drugstore sector in sales and profits with 1,600 24-hour stores (out of their 6,237 outlets), convenient locations and easy online access. In the first quarter of 2008, the Deerfield, Ill.-based chain reported a 5.5% increase in earnings and a record $14 billion in sales.

J. Crew: CEO Mickey Drexler managed to take a company that competed with the Gap selling t-shirts and khakis and revamp its merchandise on quality and price. He made the designer business affordable through brilliant product development. Now customers get cashmere sweaters and tailored suits for less than high-end labels. "It's perceived exclusivity," says Chen. "It's pretty accessible and for their customer it's a bargain." J. Crew might still sell some basics, but they do it better than anyone else. Their fiscal year ended February 2 with revenues increasing 16% and comparable store sales up 6%.

Kroger: The largest traditional food retailer in the U.S. is doing well because its stores are convenient and people still need to eat. According to the WSL Strategic Retail survey, spending on food showed a net gain of 34 percentage points between those spending more versus those spending less compared to 2006, mostly because food prices have gone up. It has less to do with people buying more or trading up to gourmet items. Kroger's fourth quarter same-store sales at those open at least a year increased by 5.3%.

Tiffany & Co.: The little blue box is doing just fine, particularly overseas. After all, wealthy folks still have Valentine's Day and wedding gifts to buy. Luxury retailers without an international presence are the ones struggling. "Tiffany's end results were pretty good because they don't only sell to clients looking for affordable luxury but to very rich customers who are not necessarily impacted by the U.S. dollar," says Dave Sievers, retail practice leader at Archstone Consulting. He foresees luxury spending stabilizing or even increasing as 2008 progresses. For this fiscal year, Tiffany predicts at least a 10% growth in worldwide net sales.

PetSmart: Women might scale back their own fashion purchases, but that doesn't mean they're going to let their dogs down. Just ask Leona Helmsley's pooch Trouble, who earned a $12 million trust fund when her owner died last year. WSL Strategic Retail's survey found a net gain of 28 percentage points between those spending more on their pets versus those spending less compared to 2006. In their 2008 study only two categories out of 17 showed significant spending increases among women and men: food and pet supplies. Owners are frequenting pet specialty boutiques or picking up an extra doggie tee or collar along with their own clothing purchases at places like Coach, Old Navy and Anthropologie. PetSmart, the largest specialty retailer for pets, had a same-store sales growth rate of 2.4% for 2007.