Can Retail Curb a Recession?

March 8th, 2008 · 2 Comments · Apple, Recession, Starbucks

Its official, the US economy is in a recession even if it doesn’t technically meet the criteria, that at least is what Warren Buffett says. I agree with Warren and also believe in the underlining fundamentals of the US economy, the current factors of our economic downturn is only temporary and though things might get worse before they get better the long term outlook looks positive. Even in current times I see three retail companies that use their luxury experience-based consumer goods in order to be largely unaffected by a recession. Saying this I understand that no company is ‘recession-proof’; however I argue some businesses can be ‘recession-resistance’.

The three companies which are edging the effects of a recession are: Apple Inc., Abercrombie & Fitch Co., and Starbucks Corporation. Each is a major player in their own industry while targeting individuals as a lifestyle brand. These individuals are upper-middle class consumers who continue to purchase goods in any economic circumstance. These consumers spending are not connected to their budget, but rather the experience they get out of their product. The true meaning of a lifestyle brand is not what a physical object does for a person, but what status or experience it creates. This authentic connection to brand often defines an individual therefore creating something far greater then customer loyalty, which then drives demand to a product no matter the price. One of the key drivers of sales in this case is an increase in price. I would argue that even foreseeable stagflation could help, not hurt these companies.

In the long term I predict these companies will excel not only with their balance sheets, but also with their growth. Whether it is international growth or expansion in new target markets they will continue to find consumers to get hooked on their brands. They continue to evolve and reinvent themselves; Apple continues to launch much demanded products, Abercrombie finds a new niche audience every couple years and Starbucks is currently refocusing the experience customers have in their stores. I would disagree with analysts who say that all consumers spending suffer in an economic slowdown. If this is true then these three businesses would be bankrupt, even if sales slip temporarily the long term looks strong.

Boring Market owns Apple and Starbucks Stock

Tags: Abercrombie·Apple·Recession·Retail·Starbucks

2 responses so far ↓

1 Anna // Mar 12, 2008 at 4:04 pm

Can you describe the “experience” Abercrombie provides their customers?
2 Boring Market // Mar 12, 2008 at 10:49 pm

Abercrombie & Fitch along with its other brands such as Hollister and abercrombie (a younger version of it parent brand) not only provide an “experience” to its customers, but also serves as a status symbol. A product from this company can define a person; while also walking into their stores creates a clear sense of the culture it produces. The store experience is remarkable in the way that it creates buzz and makes one feel like they are no longer shopping. The store turns into a club setting with dimmed lights, loud music and scandalous clad models for employees. They have literally jumped a curve by selling clothes with models who don’t wear any. So what really is the “experience” of Abercrombie & Fitch? Its making consumers feel they are buying into a lifestyle of either feeling important or being wealthy.

Boring Market