A trip through the mall tells the story: The recession of the past two years has devastated the retail industry, as overspent consumers have put away their credit cards, started paying off years of debt and put the kibosh on shopping.
So far, the victims include bankrupt chains like Dial-a-Mattress, Filene's Basement, KB Toys, Circuit City, Mervyn's, Steve & Barry's, Linens 'n Things plus hundreds of smaller retail outlets. Vacancy rates at shopping malls have been shooting up, and 10% of malls might close, by some estimates. The pain could continue for another year or longer, as unemployment keeps rising and shoppers scrimp.
The hammer has come down hardest on the most vulnerable retailers: those that expanded too rapidly during flush times, took on too much debt or derived too much business from a single, troubled segment of shoppers.
The demise of the weakest players, however, has produced a classic consolidation in which stronger companies -- or those that are simply the last left standing -- benefit from their rivals' pain. In many retail sectors, better-run operators are getting bigger while competitors downsize or go out of business.
To identify some of these recession winners, I analyzed data provided by financial research firm Capital IQ, a unit of Standard & Poor's, to see which retailers have made gains since the recession began, near the end of 2007. Capital IQ crunched the numbers on about 140 retailers with annual revenue of $250 million or more, in a dozen categories including apparel, electronics and Internet sales. It calculated revenue and market share in 2007 and 2009, and noted which companies had the biggest increases over that time.
To arrive at a final list, we eliminated companies with market share too small to be meaningful and other anomalies, then selected the top one or two companies in a variety of sectors.
These retailers haven't necessarily escaped the recession. Many are simply toughing it out better than competitors, thanks to low debt or conservative management. Most of these companies offer products or services that appeal to consumers trying to save money, and many have two or three lines of business, so the whole company isn't captive to a single market.
And most have been rewarded with stock-price performance far better than the Standard & Poor's 500 Index ($INX), which has fallen by 30% since the start of 2008.
Once the economy recovers, these retailers will enjoy a competitive position that has become significantly stronger over the past two years:
1. Aaron's (AAN, news, msgs). (Revenue increase since 2007: 21%)
This rent-to-own furniture chain has been aggressively expanding and buying up competitors, aided by an economy that favors its business model. Its inexpensive products are recession friendly, and for consumers or small businesses unable to get loans to help finance big-ticket purchases, renting is an attractive option.
Aaron's stock price has risen about 50% since the recession began, and analysts think the company will continue to thrive in an economy that will be tough for a while.
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Here's something uncommon in the clothing industry: double-digit sales gains and an optimistic outlook. While pricier competitors like Abercrombie & Fitch (ANF, news, msgs) and American Eagle Outfitters (AEO, news, msgs) have struggled, Aeropostale's unpretentious gear has found new cachet with teenagers trying to look cool on a budget (as well as with their parents). A new sub-brand aimed at grade-schoolers, PS From Aero, has also caught on.
With strong back-to-school sales, Aeropostale recently raised its earnings projections. And the company's stock has soared 68% through the recession.
3. Amazon.com (AMZN, news, msgs). (Revenue increase: 38%)
This premier online retailer is gaining from the pain at the mall. While overall retail spending has fallen, online sales have kept growing, as thrifty consumers search for the lowest price on the Web and even try to save gas money by shopping from home.
Video: Stock picks in retail and tech
In its quest to become an online megastore, Amazon has expanded way beyond books and music and acquired other online retailers. The competition is tough, but by most measures Amazon is poised to become the Wal-Mart (WMT, news, msgs) of the Web (even more, perhaps, than walmart.com).
Continued: Justify the pampering
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