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The 3 Largest Retail Apocalypse-Proof Stocks in 2021

By Jeremy Bowman - Mar 26, 2021 at 8:30AM

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These three retailers all have one important thing in common.

Investors have been talking about the retail apocalypse for years, but it was the pandemic that more clearly separated the retail sector into the haves and have-nots.

Most retailers got crushed by the pandemic, especially mall-based chains like department stores and those in the apparel sector. During a time when e-commerce and features like curbside pickup have become especially important, the mall ecosystem has been a poor fit. Among the sectors that did thrive were home goods retailers and multi-category retailers that benefited from shoppers consolidating trips. The biggest three in that category, Walmart (WMT 0.39%)Costco Wholesale (COST 2.28%), and Target (TGT 1.13%), are also the three largest retail apocalypse-proof stocks on the market right now. Let's take a look at what each has to offer.

People walking through a mall

Image source: Getty Images.

1. Walmart

With a market cap of $375 billion, Walmart is the most valuable brick-and-mortar retailer in the country. That shouldn't come as a surprise as the company is both the biggest retailer in the world and the biggest company in the world by revenue. While Amazon (AMZN 5.73%), the leading horseman of the retail apocalypse, has long posed a threat to it, Walmart has risen to the challenge and proven itself retail apocalypse-proof along the way.

The retailer has outfitted thousands of stores -- most of its base -- to facilitate convenient pickup and delivery, leaning on its leadership in groceries to give it an edge over Amazon. Walmart has also posted more than 20 straight quarters of comparable sales growth, showing it's no victim of the upheaval in the industry.

Looking ahead, the company is shifting its business model to use its massive store base as more of a platform, supporting services like its e-commerce marketplace and fulfillment, health clinics, a fintech start-up, and an advertising business that leverages its digital real estate.

In just a few years, Walmart has ramped up its e-commerce business to $64.9 billion in annual revenue, and management expects to hit $100 billion in two years and $200 billion a few years after that, showing that it is becoming one of the world's biggest e-commerce companies as well.

2. Costco

Costco may be the best example of a retail apocalypse-proof stock, as the company's membership model locks in customers and incentivizes spending at its stores much in the way Amazon Prime does for Amazon. That model also helps Costco deliver rock-bottom prices on bulk goods that are hard to beat, and the company has earned a reputation for quality and value with the help of its Kirkland private-label brand. 

Costco's membership renewal rate is 91% in the U.S. and 88% in Canada, showing its customer loyalty is strong. Those membership fees also ensure a profit for the company as it essentially prices its products at cost, making most of its profit from membership fees.

The warehouse retailer has had to adapt to the e-commerce era. After years of resistance, the company made two-day delivery on non-perishables available with a $75 minimum and also partnered with Instacart to do same-day delivery on perishables with a $35 order minimum. E-commerce sales have surged since it launched that program, and Costco's overall business remains one of the most consistent growth stories in retail.

It's thrived during the pandemic with adjusted comparable sales up 12.9% in its most recent quarter. The company continues to open new stores, a sign of confidence in its brick-and-mortar warehouse model.

With a market cap of $150 billion, Costco's market value is less than half of Walmart's.

3. Target

Target rounds out this trio of multi-category retailers, and it also had the best year out of all three in 2020. The "cheap chic" chain posted 19.3% comparable sales growth last year, and adjusted earnings per share jumped 47.4% to $9.42. Of these three retailers, Target is the best positioned to capture market share from rivals as it competes directly with mall-based chains and department stores that were struggling before the pandemic and are in even worse shape today. In fact, Target gained $9 billion in market share last year and its momentum is likely to continue this year as its same-day fulfillment options like curbside pickup and delivery with Shipt have been hugely popular during the crisis, which should help it keep its new customers.

Target also has the strongest operating margin  of the group, as the company's strategy of using its stores to fulfill online orders makes its e-commerce business more profitable than Walmart's. It is better diversified across multiple categories than Walmart and Costco, both of which get a majority of their sales from groceries. Target's focus on owned brands, which offer better margins than name brands, also helps.

Looking ahead, Target plans to grow by adding new small-format stores, which leverage the company's strengths as a broad-based retailer and its omnichannel strategy. The company also said it would step up investments to enhance its supply chain, open new stores, and remodel existing ones, which should pave the way for future growth. With a market cap near $100 billion, Target still has plenty of room to grow, especially as the retail landscape continues to change.

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Stocks Mentioned

Wal-Mart Stores, Inc. Stock Quote
Wal-Mart Stores, Inc.
$148.05 (0.39%) $0.57, Inc. Stock Quote, Inc.
$2,261.10 (5.73%) $122.49
Target Corporation Stock Quote
Target Corporation
$219.73 (1.13%) $2.46
Costco Wholesale Corporation Stock Quote
Costco Wholesale Corporation
$497.27 (2.28%) $11.09

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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