Facing A Recession, Retailers Ramp Up Spending
Learning From the Past
Conventional wisdom says that companies should slow down spending when facing a recession. After all, since people are spending less, it makes sense that companies should be more conservative regarding their cash flows. But, according to data from consulting firm Gartner, that thinking may actually be the opposite of reality.
Gartner research indicates 60 companies that invested heavily during the financial crisis saw their earnings double between 2009 and 2015. Meanwhile, companies that slowed investments throughout the downturn saw little change in profits by 2015. This suggests companies that invested heavily during the crisis emerged stronger and stole market share from competitors.
In 2022, many retailers seem to be taking this data to heart.
Where Are Companies Investing?
Gartner conducted a survey that asked CEOs and CFOs what to expect in terms of spending cuts. The two areas where management are unlikely to make cuts are “workforce and talent development” and “technology for improved performance.”
For example, Walmart (WMT) is investing heavily in an augmented reality system that helps associates restock shelves faster. Overall, the retailer increased capital spending by 50% to $7.5 billion during the first half of its fiscal year.
Home Depot (HD) is also investing heavily in a bid to improve its supply chain so as to attract professional contractors, who spend much more that typical DIY-ers.
In terms of total capital expenditures, Amazon (AMZN) led all retailers by spending nearly $31 billion on property and equipment in the first half of the year.
Revamping a Stale Brand
Instead of pouring money into new tech, other retailers are focusing on revitalizing their aging brands through strategic partnerships. For example, Kohl’s (KSS) is investing nearly $220 million to support 400 new Sephora shops within its stores.
Target (TGT) is also adding 200 new in-store Ulta Beauty stores, en route to supporting 800 total such stores in its locations.
Back in 2008, investing heavily during the recession paid off big time. The latest downturn provides another opportunity to test that theory.
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