The Trade-Down Effect

6/16 - "In recent months we have seen soaring fuel and food prices, declining home prices and home equity, a fairly high increase in the unemployment rate and an economy which has slowed considerably from its levels just a few months earlier. Yet at the same time we are seeing the consumer holding up better than many folks had anticipated. So where are people spending money? Obviously, some of this is due to increases in gasoline purchases but we also see some strength out of select retailers on the very high end where a falling dollar has made US goods less expensive for foreign tourists and then we see relatively healthy growth out of some of the so-called trade down retailers who benefit from consumers looking for better bargains. Some of these trade down retailers such as Wal-Mart or Big Lots along with the wholesale stores (BJ's, Sams Club, Caustic, etc.) and to a much lesser degree Target are obvious beneficiaries but so are price leaders in other areas which may not be obvious candidates."

"Somewhat surprisingly, we have not yet seen significant strength in some of the so-called dollar store retailers such as 99 Cents Only Stores (NDN) or Family Dollar (FDO) although I would not be surprised to see a pickup in time."