The retail industry has been in transition for a while now. The rise of e-commerce has forced major changes upon the incumbents, and those that have remained successful have either adopted an omnichannel model or found unique value propositions to attract consumers.
The retailers that haven't done either of those things have struggled, and many have gone out of business. It's easy to blame their bankruptcies on the so-called retail apocalypse, but it was not solely the growth of online retailers that hurt those brick-and-mortar chains -- it was their failure to evolve.
These three chains have figured out how to succeed in a shifting retail environment, which is why they are set up for long-term success even as the changes continue.
For a while, it looked like Target (TGT -1.11%) might not wind up one of the retail winners. But the story changed in 2014 when Brian Cornell became CEO and started plotting a transformation of the chain. He focused first on remodeling stores to make them reflect the way consumers shop.
In many cases, that meant dramatic overhauls. Some changes -- like putting impulse items near the door -- were simple. Others, like partnering with Walt Disney for store-within-a-store concepts, were more profound.
Cornell also made numerous changes that consumers won't see. Those included revamping the company's supply chain to support two-day, one-day, and even same-day delivery of Target products purchased online. And Target built up an array of owned-and-operated brands, including some on which it partnered with celebrities and big-name designers. That gave it a catalog of unique merchandise that has effectively drawn customers to its stores.
Costco (COST -0.11%) changes extremely slowly. The warehouse club still makes most of its money from selling memberships. That means that as long as its membership grows and retention remains high, it does not have to make major business pivots.
That does not mean Costco hasn't evolved. It has, of course, remained laser-focused on value, but it has also added delivery options and invested in a much-improved website. Many would say that it came late in the game to those innovations, but given that the warehouse club adds members every quarter and has kept its retention rate hovering around 90%, it has the luxury of acting slowly, as long as it acts eventually. That's a real advantage because it means Costco can let its retail rivals spend big on pioneering the industry's changes, then follow behind once it's clear what consumers want.
3. The TJX Companies
The TJX Companies (TJX -1.49%) -- whose brands include TJ Maxx, Marshalls, and Home Goods -- understands the value of a bargain and the strength of a business model built on the treasure-hunt effect. Basically, consumers shop at these stores at least partly for entertainment. The value aspect is only a piece of the puzzle.
Because consumers like the experience of finding unexpected bargains while shopping at these chains' brick-and-mortar locations, TJX has not needed to follow the new omnichannel blueprint. Its chains may benefit from expanding online, or by offering a buy-online-pickup-in-store option, but that will be the icing on the cake, not the main course.
These brands are incredibly resistant to economic downturns. In fact, they may do better in recessions as consumers seek out values and look for ways to make bargain-hunting fun as well.
Retail is change
Any of these stocks could make sense in your portfolio because all of these companies have shown they can succeed even in challenging times. Costco and TJX are largely internet-proof, while Target has become a digital leader that also gives consumers a reason to visit its stores.
As an investor, you want to put your money in companies that can zig when the market zags. These three companies have shown that ability, and all three of them layer that ability on top of a strong foundation.