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Retailers that Benefit in the New Economy

rbe-2Retailers that benefit in the new economy aren’t always the dollar stores and other bargain basement discounters. Instead, the dismal economy is giving a big sales boost to some unlikely stores. Decidedly high-end stores that cater to an affluent demographic are actually doing well in today’s new economy.

  • Costco Wholesale Corporation (COST)–The king of club stores is doing extremely well these days, with revenue that increased 14% in the last year. That revenue reflects a real increase in sales; Costco’s net sales were up by 7% in January. At the same time Walmart reported a sales increase of just 1%. Discounters Family Dollar and Dollar General reported falling sales.

So what’s behind Costco’s surge in such a tough economy? The most likely cause is that a lot of upper income people are belt-tightening, expecting higher taxes or an economic downturn. Those people want to keep buying quality products, and Costco has lower prices. Another factor is Costco’s membership club nature, which keeps out a lot of lower class shoppers. Also boosting Costco is the growing number of small businesses and home businesses.

  • Trader Joe’s —The funky and privately held Southern California grocer is doing very tj-2well these days. It now has 350 stores compared to Whole Food’s 300, and it boasted $8 billion in annual profits. Joe’s now operates nationwide; it’s even opened up in Whole Foods’ backyard in Austin, Texas. Much of that profit comes from low prices on traditionally high-end goods, such as wine, beer, and gourmet foods. Despite its gourmet reputation, Trader Joe’s is a discount store. It sells to those with more refined tastes.

The classic example of this is “two buck chuck,” the cheapest 750 milliliters bottle of wine on the market. Okay, two buck chuck now goes for $3.79 at some Trader Joe’s, but you get the picture. It sells a bottle of wine for less than the price of a glass of wine at the average restaurant. The new economy benefits Trader Joe’s because it is where gourmands go when they need to start pinching pennies. Another reason why Trader Joe’s is doing so well is that it concentrates its expansion efforts on those areas of the country doing well in the bad economy.

  • The Apple Store —Like almost everything else Steve Jobs created, the Apple Store is a money-making machine. Apple Stores have a 26% profit margin and raked in $4.4 billion in worldwide retail sales last year. So why does the bad economy benefit the Apple Store? People have less money to spend on luxuries, so they want quality and service. Apple can provide it at a competitive price. People like the atmosphere and the attention they get at an Apple Store; they feel like they have money when they go into a store and get personal attention even if they don’t.

Apple has figured out how to make buying a $300 iPhone seem like a trip to Disneyland. The Apple Store might be today’s equivalent of a movie palace during the Great Depression, a place a person could go to experience low-priced luxury without feeling guilty. The Apple Store is only a small part of Apple’s business, but it has been so successful that Google and Microsoft are now opening copycat stores.

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