Investing Trivia -- Not All Retailers Got Hammered in 2008

According to the U.S. Commerce Department, the fourth quarter of 2008 marked the worst retail shopping season since at least the 1970s. But few would guess that the best performer in the Dow last year was actually a retailer. Who was it?

A.) Big Lots (BIG)
B.) Wal-Mart Stores (WMT)
C.) TJX Companies (TJX)
D.) Williams-Sonoma (WSM)
E.) Limited Brands (LTD)

Published: February 4, 2009

The correct answer is (B.) Wal-Mart Stores (WMT)

Given the gloomy economic environment, many investors would guess that the best performers were companies in traditionally defensive industries such as healthcare or the food industry. But that wasn't the case in 2008. Dow components Kraft Foods (NYSE: KFT) and Johnson & Johnson (NYSE: JNJ), considered two of the most defensive names in the Dow, fell -18% and -10%, respectively. Few would guess that the best performer in the Dow last year was a retailer -- Wal-Mart Stores (NYSE: WMT) returned +19.5%.

In a conference call last year, Wal-Mart commented that it actually saw a shift in its customer base; the credit quality and average income level of its shoppers appeared to increase. The reason is simple: Some shoppers who might normally buy their groceries and household goods elsewhere switched to Wal-Mart to save money.

It's proof that a negative retail environment isn't bad news for all retailers. When the economy slows sharply, consumers don't stop spending entirely but they do shift their consumption habits. This is particularly true in this economic cycle. Strong growth in incomes for workers in the financial services industry has been a boon to luxury retailers in recent years; but banks and brokers were among the hardest hit in the recent contraction, destroying demand.

Even as consumers cut spending on expensive items and premium brands, they still need basic apparel, household goods and groceries. These basic staple items are the province of the discount retailers, and spending at such stores actually tends to accelerate in uncertain economic times.

With these points in mind, StreetAuthority editor Paul Tracy has picked through the proverbial clearance bin to find retailers that are thriving in this market and giving investors something to cheer about. In the latest issue of his Market Advisor newsletter, Paul takes an in-depth look at today's retail environment and provides insight into nine discounters that have rallied more than +20% in 2008, year compared to a -32% decline for the S&P Retail Index! To learn the names of these stocks, and to learn more about Market Advisor, please visit this link.

Want to answer more trivia questions? Visit our archives here!

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