Stocks of retail discounters have seemed like good defensive investments in troubled economic times. But even for the strongest names, the current recession is no walk in the park. Both Wal-Mart Stores
Last week, Target said it would drastically slow its new store openings in the U.S. It intends to open less than 10 stores in 2010, compared to 60 last year, and a previous average of roughly 100 per year. Instead, Target will spend $1 billion to remodel some existing stores for a greater emphasis on groceries. The cheap chic that once drew shoppers to Target seems to be giving way to more bare-bones necessities.
Though Target stores may have temporarily popped up for the holidays, on the whole, the retailer's standing down for the time being. However, it is planning on some international expansion, and trying out smaller stores in urban locales, in the next five to 10 years. In the U.S., the retailer thinks it can still expand its 1,700-odd store footprint to nearly 5,000 over the long term.
Meanwhile, Wal-Mart's cutting more than 11,000 jobs at its Sam's Club locations, representing about 10% of the unit's workforce. Among other plans, it's hiring an outside firm, Shopper Events, to run its product demonstrations. According to Reuters, the company's positioning this move as an "investment in the in-club experience," not cost-cutting. The company also said that former workers could apply for the positions with Shopper Events. Still, the outsourcing is a sign of the retail world's very difficult competitive environment. (It's also not the first inkling that Sam's Club needs some tweaks.)
Big-box discounters like Wal-Mart, Target, Costco
Stocks in the discounters named above still strike me as safer investments than retail stocks such as middle-of-the-road Macy's
Alyce Lomax does not own shares of any of the companies mentioned. Best Buy, Costco, and Wal-Mart are Motley Fool Inside Value choices. Best Buy and Costco are Stock Advisor recommendations. The Fool owns shares of Best Buy and Costco. The Fool has a disclosure policy.
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