Seven Recession-Proof Companies

By Ryan Goldberg  SEP 08, 2008 8:45 AM

How Urban Outfitters, McDonald's and other stalwarts stay profitable in uncertain times.

 


There's a beautifully rehabbed 4-story industrial warehouse in downtown Brooklyn, its red brick façade emblazoned with large white letters foretelling of a long-ago business: John Curtin Inc. Sail Makers - Canvas Goods.

It had recently been a furniture store, but stood vacant since early 2006, shortly before I first passed by. I was disappointed when the store reopened 6 months ago as a chain retailer; another example of corporate overdevelopment, I thought. But then I saw the masthead -- Urban Outfitters (URBN) -- walked in and immediately changed my mind. I had shopped at Urban Outfitters before, but this particular location elevated its hip ethos to a new level.

As retailers across the country have withered or tanked in the dire economic environment we presently find ourselves, Urban Outfitters hasn't simply survived - it's thrived.

With that new store in Brooklyn -- its first in the spiritual home of hipsters -- as just 1 example, Urban Outfitters has been expanding smartly and showcasing its unique playbook for weathering these turbulent times. Its stock price is near a 52-week high. And its core customers -- college students and recent graduates -- are not really prone to defaulting mortgages last time I checked.

The Philadelphia-based retailer has 3 stores under its umbrella -- Urban Outfitters, Anthropologie and Free People -- and it recently reported a 79% jump in fiscal second-quarter net income (and an impressive 13% rise in same-store sales).

Unlike many competitors, Urban's gains have come without putting much on sale across a diverse range of products: clothing, home furnishings, accessories, gardening and antique items. That last division arrived in April with Urban's first Terrain store. The company also recently unveiled a high-end women's apparel line called Leifsdottir.

It's not just the product, though, but the shopping experience and atmosphere that matter. Urban Outfitters wants you to feel a certain way when you browse its aisles: That store in Brooklyn occupied 2 airy floors of the converted warehouse, the music was set to indie rock and the staff, like trendy mannequins, wore its clothing like a hipster badge of honor. The consumer is supposed to feel cool shopping there; the Urban brand is to retail what Apple is to technology.

And selling the brand has been carefully calibrated. It means, in essence, remaining scarce. Chairman Richard Hayne, the company's founder, laid out the notion that "big is the enemy of cool."

Instead of saturating the market -- also like Apple -- Urban's CEO, Glen Senk, plans to cap growth for stores at approximately 250 in each division. Reaching that goal will take time. Urban plans to open 45 stores by the end of the fiscal year, putting its total at 300 across all divisions. It also has its sights set internationally.

Without much thought, I found myself walking out of that Brooklyn store with a pair of Levi's and a T-shirt. I felt cool. Still, I was reminded of something Philip Seymour Hoffman said in his portrayal of Lester Bangs in 2000's Almost Famous: "They make you feel cool. And hey, I met you. You are not cool."

Click through for 6 more recession-proof brands that continue to profit like it's 2001.

 

McDonald's (MCD)
The Golden Arches won't be crumbling any time soon - not when customers are salaciously teased with McRibs - or when clamoring for Happy Meals continues to strengthen kids' vocal cords.

Purina
Not many companies could survive recall of a product that sometimes caused death when consumed, but Purina pulled it off. Could be the checkerboard logo, could be the taste (if that purring is any indication).

Anheuser-Busch (BUD)/ Fortune Brands (FO)
Can't find a job? Is your house on the verge of foreclosure? What're you gonna do? Yeah, that's right: Get hammered.

Wal-Mart (WMT)
Mom & Pop may provide the warmth of a family-run business, but they can't offer 12 pairs of tube socks for $2.99. "One-stop," "cheap" and "sweat shop" are magic words in an economic downturn.

Ace Cash Express/Cash America (CSH)
As banks continue to hike fees and reduce hours -- and eBay (EBAY) insists that you actually ship the items you sell -- check-cashing locations and pawnshops are a fast-cash oasis.

Rent-A-Center (RCII)
Why wait months to save for a much-needed bed when you can have one now and pay on the installment plan? Sure, it'll end up costing $5,300 in total - but that won't be until 2013.

No positions in stocks mentioned.

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