by J.C. Vogen

Created on: December 07, 2008   Last Updated: March 14, 2010

Recession is a word which all companies fear. When consumers have less to spend, companies have less profits to gain, but not all companies will see the same decrease in performance during a recession. There are a few companies which in actuality are well suited for tough economic times, since their products cater to consumers who are less economically privileged. While unemployment soars, consumers do not wish to purchase a new car or a new house. The focus of the consumer becomes on providing the necessities of life instead of splurging on luxury goods.

Examination of Target (TGT) vs. Wal-Mart (WMT):
Wal-Mart Stores, Inc. and Target Corp. illustrate how consumers make buying decisions during tough economic times. While the two companies offer similar products, Wal-Mart generally offers less expensive brands to consumers. The National Bureau of Economic Research just recently released official confirmation stating that the United States economy has been in a recession since December of 2008. By looking at the trends over the last year for the two companies, it becomes apparent that consumers are willing to sacrifice the quality associated with more expensive brands in on order to save a few dollars during a recession.

The following information of Wal-Mart and Target during the first year of the United States being in a recession shows the success of Wal-Mart in comparison to rival Target.

WMT:
12/3/07: $47.87

12/3/08: $54.38

52-Week Range: $43.11 - $63.85
Percentage Change over Year: + 13.599%

TGT:
12/3/07: $59.52
12/3/08: $34.48
52-Week Range: $25.60 - $59.55
Percentage Change over Year: - (42.0699%)

In times of recession, an investor must consider which companies will be best suited to meet the needs of consumers. Consumers are no longer going to pay a few extra dollars for what may be a slightly superior product. During this recession, consumers will be making choices to deal with their immediate economic situation.

If you are a potential investor trying to look for the most reliable company to invest in during these times, avoid companies which provide luxury goods. Focus on paying attention to companies which provide their individual service or product for the cheapest price in their industry. Think about other rival companies which compete with varying quality products similar to Wal-Mart and Target.

Another industry for illustrative purposes is the fast food industry. McDonald's is renowned for cheap burgers, and Wendy's has a reputation of a better quality burger. Is it a chance coincidence that McDonald's managed to remain stable over the year, whereas their higher quality rival Wendy's has experienced roughly a 50% decline in stock price? Knowing the basic mentality of a recession stricken nation can provide an investor insight into which companies will experience growth, and which will experience hardships.

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