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.

Things are changing daily within the financial world. Sign up for the SoFi Daily Newsletter to get the latest news updates in your inbox every weekday.
Sign up

Please understand that this information provided is general in nature and shouldn’t be construed as a recommendation or solicitation of any products offered by SoFi’s affiliates and subsidiaries. In addition, this information is by no means meant to provide investment or financial advice, nor is it intended to serve as the basis for any investment decision or recommendation to buy or sell any asset. Keep in mind that investing involves risk, and past performance of an asset never guarantees future results or returns. It’s important for investors to consider their specific financial needs, goals, and risk profile before making an investment decision.
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. These links are provided for informational purposes and should not be viewed as an endorsement. No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this content.
Communication of SoFi Wealth LLC an SEC Registered Investment Adviser
SoFi isn’t recommending and is not affiliated with the brands or companies displayed. Brands displayed neither endorse or sponsor this article. Third party trademarks and service marks referenced are property of their respective owners.
SOSS22091303