Understanding Recession-Resistant Retail

The term “recession-resistant” refers to industries, businesses, or sectors that have historically remained relatively stable or even thrive during periods of economic downturn¹. Within the retail industry, certain retailers and sectors display characteristics that may enable them to withstand recessions more effectively than others. 

So, what makes a retailer “recession-resistant”?

Characteristics of Recession-Resistant Retailers

1. Essential goods and services: Recession-resistant retailers often deal with essential goods and services, such as food, hygiene products, and healthcare items. These are products that consumers need regardless of their financial situation. During an economic downturn, consumers might cut back on discretionary spending but generally will continue to purchase essential items².
   
   
2. Value-oriented propositions: We’ve observed retailers that offer products at lower prices tend to fare better during recessions. Consumers generally become more price-conscious during economic downturns, so retailers like discount stores, outlet stores, and "dollar stores" typically see steady or generally increased sales³.
   
   
3. Strong financial health: Retailers with strong financial health, including low debt levels and robust cash flows, are generally better equipped to navigate through a recession. They can typically weather temporary downturns in sales and usually are less reliant on external financing.
   
   
4. Diversified product portfolio: Retailers that have a broad and diversified product range may be more recession-resistant. Such diversification can help them meet varied customer needs and generally allows them to adjust their offerings based on changing consumer preferences during a recession⁵.
   
   
5. Adaptive supply chains: Retailers with flexible and efficient supply chains can typically quickly adapt to changes in consumer demand during a recession, potentially reducing waste and overheads while potentially ensuring availability of goods⁶.
   
   
6. Strong customer loyalty: Retailers with strong brand loyalty can remain resilient during a recession, as loyal customers may continue patronizing the brand despite economic challenges.⁷

In addition to more general risks such as high vacancy rates, oversupply of product in the market, and credit quality of tenants, some of the factors that can impact the success or failure of retail investments include the length of the lease(s) and whether it's single or multi-tenant.

¹https://www.investopedia.com/terms/r/recession.asp

²https://www.shopify.com/blog/recession-proof-businesses

³  “Are We in a Recession Now? Just Look at Discount Retailers. Dillon, Jared. Bloomberg. July 14, 2022. https://www.bloomberg.com/opinion/articles/2022-07-14/is-the-economy-already-in-a-recession-ask-the-discount-retailers#xj4y7vzkg

⁴https://www2.deloitte.com/us/en/pages/consumer-business/articles/retail-recession.html

⁵https://www.cnbc.com/2023/03/16/retailers-recession-playbook.html

⁶https://www.pymnts.com/commerce/2022/as-recession-looms-retailers-face-pressure-to-quickly-diversify-suppliers/

⁷https://www.ogilvy.com/ideas/power-loyalty-recession

Market volatility or lack of liquidity could impair an investment’s profitability or result in losses. Factors such as high vacancy, oversupply of the product in the market, increase in interest rates for borrowing loans, bad credit quality of tenants occupying the property, general economic risks such as interest rates, availability of credit, inflation rates, economic uncertainty, changes in laws and general overall deterioration of the market in which the asset sits, all of which could lead to financial difficulties and impact net operating income and can depreciate the value of the property. These factors, in addition to others including increases in the costs in excess of the budgeted costs, the burdens of ownership of real property, environmental liabilities, contingent liabilities on disposition of assets acts of God, pandemics and other national, regional or local emergency conditions, terrorist attacks, and war may affect the level and volatility of asset prices and the liquidity of investment assets.

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