Retailers That Are Looking Good – 2/13/09
The economy certainly hasn’t been good for the retail business but that doesn’t mean there aren’t retailers that are doing well. There are obvious examples such as Wal-Mart, Aldi, Amazon.com and some dollar store chains that have found ways to achieve growth while competitors have struggled.
A piece on Kiplinger.com points to four other chains – Best Buy, Bed Bath & Beyond, Urban Outfitters and GameStop – that have remained solid and show promise for coming out of the recession stronger than before.
Best Buy and Bed Bath & Beyond are looking particularly strong because, having fought off major competitors, Circuit City and Lines ‘n Things respectively, they now find themselves in business with one less significant rival to deal with.
Best Buy has cut costs – the company just announced a layoff of an additional 250 people at its headquarters – as sales of consumer electronics have softened but is in a position to look at purchasing some of Circuit City’s better locations once the bankrupt chain has completed its liquidation.
Bed Bath & Beyond is on solid footing with Linens ‘n Things out of the way. And unlike its vanquished rival, Bed Bath & Beyond is debt free. “In retailing, the mantra right now is ‘Balance sheet, balance sheet, balance sheet,'” said. Don Wordell, manager of RidgeWorth Mid-Cap Value fund.
Urban Outfitters, according to Kiplinger, “is as close as you’ll come to a recession-proof clothier.” The chain saw total revenues increase 22 percent in 2008 versus the previous year while stores open at least a year achieved a sales increase of eight percent.
The company, which operates stores under its namesake banner as well as Anthropologie and Free People, gets high marks for smart management that offers a nice mix of branded and private label clothing, accessories and home furnishings in quirky yet customer-friendly store environments. “Urban Outfitters knows how to merchandise really special things,” said S&P analyst Marie Driscoll.
GameStop has benefited from America’s love of video games. Beyond that, it has thrived in part due to its strong used game business. The company’s gross margins are in the 50 percent range on used games, helping it to make “more selling $30 worth of used products than it does selling $60 worth of new products,” according to Janney Montgomery Scott analyst Tony Wible.
Discussion questions: What impresses you most about the chains discussed here? Are there any common threads they share that have made them successful while competitors have struggled?
The elimination of significant, albeit weak competitors is certainly an easy way to show good results. Even Gottschalks, the struggling Fresno-based regional department store chain had a great January with one of the best trends in the nation – but mainly due to the closings of Mervyns locations, one of their key competitors. The impressive story is BB&B – debt free in an industry that seems to have choked on the fountain of easy debt that financed what has turned out to be unsustainable growth. Finally, all the named retailers have a compelling customer offer. Without that, even losing competition and low or no debt won’t save them. The two keys: excellent balance sheet and a compelling customer offer. But it never hurts for a significant competitor to close its doors!
Mike Osorio, your Dare to be Contagious! TM strategist
Go to the full discussion at RetailWire.com:
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