Economic cycles are Darwinian, picking off weak companies and leaving survivors stronger.
More than a year into the recession, solid retailers have their pick of mall space. Respected banks are getting an influx of deposits. Tech companies with money to spend are having an easier time hiring.
It's been a year of brutal losses. More than 1.2 million jobs have vanished. The broadest measure of the stock market, the Wilshire 5000, is down more than $7 trillion, a 40 percent slide. The indicators that have increased are measures of misery, like foreclosures and demand at food pantries.
Corporate survivors, however, should benefit as competitors disappear. Retailer Bed Bath & Beyond Inc. won't have to contend with Linens 'N Things, which is in liquidation. Best Buy Co. may not be fighting price wars with Circuit City Stores Inc., which is reorganizing in Chapter 11 bankruptcy. FedEx Corp. won't scrap for market share against DHL Express, a German-owned company that is leaving the U.S.
Staying in business won't be easy — sales declines are a given and job cuts are likely to continue. But we won't remain in the dumps forever, and the companies that will be best positioned when the economy eventually improves may include the following:
Expanding retailers
Kohl's Corp. and Forever 21 are rare among retailers: They're expanding. They have their pick of new locations, since failed competitors mean they can get bargains. The Bombay Co., Sharper Image Corp. have closed all their stores in the past year, leaving empty space at malls nationwide; meanwhile, Mervyns is in the process of liquidating.
As a result, landlords that once demanded tough terms from retailers — insisting, for instance, that they rent space in second-tier malls if they wanted to open stores in top malls — are in no position to negotiate, since they have so much empty space to fill.
Buying leases of bankrupt stores gives them an even stronger hand, letting them strike even better deals.
Kohl's and Forever 21 said Friday they had jointly bid a bargain price of $6.25 million for the leases of 46 locations from Mervyns stores. Kohl's will open in 31 of those locations and Forever 21 will move into the rest, if the deal is approved in bankruptcy court.
Kevin Mansell, president and CEO for Kohl's, said the company is sizing up more Mervyns real estate. "We will continue to be opportunistic," he said.
Cheap alternatives
The one clear retail winner of the recession has been Wal-Mart Stores Inc., which offers consumers bargains on everything from pet food to ATM fees. Wal-Mart's sales rose 3.4 percent in November. It was among a handful of retailers to report a gain.
The company has benefited from shoppers switching to cheaper stores and focusing on necessities, like food and diapers. Falling gas prices have also helped the retailer, as shoppers' total trips to its stores have increased.
It also has another advantage. While other retail companies have been scrambling to cut costs, Wal-Mart has always pinched pennies, furnishing its managers' offices with cast-off card tables and rejected lawn chairs. As a result, it already has the cost structure some competitors are frantically trying to mimic.
Another winner is McDonald's Corp. The fast food company's sales rose nearly 8 percent in November. The chain added healthy items to its menu and improved its food before the recession. It also expanded its hours to sell more early morning breakfasts and late-night burgers.
If their sales stay up, both companies should have plenty of cash to spend on new stores or new products when the recession is over.
Stable banks
Wells Fargo & Co. could leave the recession as the nation's dominant bank, but its path through the next few years won't be painless.
It could still face hefty writedowns on mortgage securities it holds. Its customers' credit card balances increased by 26 percent in the most recent quarter — which could leave it holding stacks of unpaid credit card bills if job losses continue.
Still, Wells' planned deal to buy Wachovia Corp. for about $13.1 billion would add 3,300 branches in 21 states, extending the company's business east of the Mississippi for the first time. And the potential minefields in its financial statements are nothing compared to what its competitors face.
A bank that's even more old-school than Wells is Hudson City Bancorp Inc, a Standard & Poor's 500 company that that few people outside its New Jersey base have heard of. It made no subprime or Alt-A loans during the go-go years. It doesn't resell its loans — it holds them. And it saw deposits increase 3 percent in the most recent quarter.
If this continues, Hudson City will leave the downturn with an even broader deposit base it can use to make a greater number of good-quality loans.
Goliaths
Delta Air Lines Inc. became the largest airline in the world when it merged with Northwest in October. The company says it will make a profit next year, thanks to capacity cuts, lower fuel costs and new fees it charges customers.
Fewer seats across the industry mean airlines have more power to raise prices. If fuel costs stay low, that should make Delta, as the largest player, the best positioned to cash in on higher demand when the downturn ends.
Likewise, Google Inc. remains the champion search engine. Even though it is trimming costs, offering its employees two entrees at its daily free meals instead of three, the company is in a great position to snap up the most talented engineers at a time when some tech companies are cutting jobs.
It also has a mountain of cash — $8.4 billion at the end of the last quarter. With many venture capital firms depleted and the market for initial public offerings comatose, that means it can buy promising companies or technologies with little competition.
Similarly, AT&T Inc. and Verizon Communications Inc. are the top wireless carriers at a time when tough creditors favor the largest players with the most cash coming in. That likely means fewer startups and small companies to contend with, cementing their lead.
Tech kings
New gear and software is way to improve productivity. As a result, business' technology spending may be postponed, but it won't be canceled.
Adobe Systems Inc.'s latest Creative Suite software is a "must have" for companies, even if it's not "must have now," wrote Kaufman Brothers analyst Barbara Coffey.
Cisco Systems Inc. has said it will invest through the recession, bragging that it came of previous downturns stronger. Its competitors are sickly and, like Google, it has a pile of cash.