Rising prices for everything from energy to food have caused expenses for businesses to increase dramatically. These costs can prevent companies from growing their businesses, resulting in a slow down in economic activity – a recession.
While we are not in a recession yet, or really even that close, it is a distinct possibility in the not too distant future. Investors need to be ready for such an occurrence. Below are three retail stocks that should hold up better than most in a recession. What they have in common is that they cater to the “cost-conscious” consumer who is more worried about saving money than buying expensive extravagances.
The king of the wholesale retailers, Costco is known for its bulk sizes, free samples and highly-rated food court offerings. The company operates retail warehouses across 12 countries, including China, Mexico and the United Kingdom. Costco’s warehouses, open to members only, sell everything from groceries and toiletries to laptops and tires.
Costco is also known for its popular Kirkland Signature brand. Kirkland Signature is exclusive to Costco and offers drastically discounted alternatives to high-priced brands while equaling those brands in quality. Many Kirkland Signature products are manufactured at the same facilities as the brands they’re based on, often using the exact specifications and formulations; Costco is basically swapping out the branded label for their Kirkland Signature label and slashing the price.
Despite the annual membership costing $120, Costco’s bulk sizes and in-house brand can save shoppers a significant amount of money over a year. Should we enter a recession, Costco should remain one of the most popular retailers in the country.
Shares of Costco are currently changing hands at $593.75 per share, down -1.62% on the day. YTD COST stock is up +4.77%.
Based in Tennessee and active in 46 states, Dollar General operates more than 18,000 discount stores. These stores typically sell products you’ll find at a grocery store or corner market, including food, cleaning supplies and pet products. As these sorts of products are getting more expensive at other stores, they remain relatively affordable at Dollar General.
The company managed to grow revenue by 1.4% in 2021, despite the headwinds caused by the COVID-19 pandemic. Management is confident that the company will see continued success for the foreseeable future, as seen by their decision to raise the dividend by 31% from the prior quarter.
Shares of Dollar General are currently trading at $256.80 per share, down -0.89% on the day. YTD DG stock is up +9.05%.
Operating more than 16,000 discount stores split roughly evenly between the Dollar Tree and Family Dollar brands, Dollar Tree is very similar to Dollar General in terms of offering similar products at affordable prices. Dollar Tree stores, however, are unique in that every product in the stores costs the same: $1.25. Due to the fixed price, these stores typically offer lower quality products and less selection. Meanwhile, Family Dollar has a larger product selection and does not have a fixed price.
Both Dollar Tree and Family Dollar stand to benefit from rising inflation; their low prices ensure that they’ll keep a large customer base because people likely cannot find a cheaper place to shop.
Shares of Dollar Tree last traded at $173.29 per share, down -0.45% on the day. YTD DLTR stock is up +22.75%.
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Disclaimer: The Editor of Wealthy VC holds a long position in GLDM. The Editor also owns physical gold bullion.