The Trade-Down Effect

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 an increase 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 (WMT) or Big Lots (BIG) along with the wholesale stores (BJ's, Sams Club,
Caustic, etc.) and to a much lesser degree Target (TGT) are obvious
beneficiaries, but so are price leaders in other area, and they may not be
obvious candidates.