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2 Discount Retailers That Will Thrive in a Recession

By Pearl Wang – Apr 22, 2020 at 8:00AM

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While many retailers are focusing on cutting expenses, Walmart is hiring 50,000 more associates on top of the 150,000 it just hired.

With most retailers struggling amid the temporary closures necessitated by the coronavirus pandemic, I see two big-box retailers in particular that are well positioned to thrive during a recession. As consumer confidence dips, indicating decreased spending on discretionary goods, people will increasingly turn to discounters and stores offering the best value for their essential staples, like groceries and daily necessities.

Walmart sign next to an American flag

Image source: Walmart.


Retail giant Walmart (WMT -2.50%) saw a big sales uptick in March and has been on a hiring spree. Walmart's 4,700 stores in the U.S. saw sales growth of almost 20% over the past four weeks (as of April 3) compared with the corresponding period in 2019. Consumers stockpiling necessities, such as bottled water, toilet paper, and groceries, to prepare for coronavirus-related quarantines, drove the spike in sales.

The retailer's online results have been just as impressive, with revenue rising more than 30% in the eight weeks ending April 3. Walmart just launched a pickup hour for at-risk customers, including those over 60 and first responders, to make it easier for them to get curbside pickup for groceries. Online grocery demand has surged since experts have advised people to make fewer trips to stores to protect against contracting COVID-19.

The consumer staples giant said on April 17 it will be hiring an additional 50,000 associates, after it met its previously announced goal of hiring 150,000 staff to work in stores, distribution centers, clubs, and fulfillment centers. The company noted that it reached the first hiring goal more than six weeks earlier than planned. The big-box retailer shortened its employment application time to 24 hours from two weeks. In a press release, Walmart said that it wants to give current associates the flexibility to stay home if they choose.

Even during a slowdown, Walmart's stock will likely perform well. From 2007 through 2009, its share price increased at a 6% compound annual growth rate (CAGR). There are many unknowns around how long the coronavirus-related business closures will last. Given this uncertainty and historically high unemployment figures, consumers will likely be more conservative with spending, leading to better revenue at discount stores.

Dollar Tree

Dollar Tree Stores (DLTR 1.41%) operates more than 15,000 stores in the U.S., under the store names Dollar Tree and Family Dollar. All items at Dollar Tree are sold for $1, while most items at Family Dollar retail for under $10. The company's revenue has fared well from increased coronavirus-related demand for essential products, and will likely continue to perform well as consumers become more value-conscious during the current crisis.

On March 20, Dollar Tree announced it would hire an additional 25,000 full-time and part-time associates for its stores and distribution centers due to a spike in demand. The discount variety store company is offering essential goods necessary for consumers, while many retailers selling nonessential products have closed their physical stores for the time being.

While the company's decision to temporarily stop online sales led to revenue for the seven days ended March 29 to decrease by 19.4%, Dollar Tree has since resumed online sales. The business will likely still fare well in the upcoming months as consumers look to save money on essential goods. Dollar Tree's unique position as a store where all items literally cost $1 will help increase foot traffic into stores.

This company trades at 17 times forward earnings, a discount relative to competitor Dollar General's 25 times forward earnings. Dollar Tree's shares performed well during the last recession, with the share price growing at a 17% CAGR between 2007 and 2010, performing better than the S&P 500.

Pearl Wang owns shares of Walmart Inc. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Walmart Stock Quote
$130.06 (-2.50%) $-3.33
Dollar Tree, Inc. Stock Quote
Dollar Tree, Inc.
$141.29 (1.41%) $1.96

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