For most companies, recessions cause a short-term dip in earnings and perhaps even dividends, but recessions are also an opportunity for the strong to take market share from the weak.
That’s because recessions cause more damage to weak companies, with many of them failing during the recession or shortly after, at which point their customers switch to a stronger competitor.
Fashion brands and retailers are very economically sensitive, so Next, BHS, Debenhams, Topman and Topshop have all been good examples of this dynamic over the past decade or so.
On the one hand, Next (which is in my personal portfolio and the UK Dividend Stocks Portfolio) is an example of an exceptionally well-run business, combining a robust balance sheet with a long-term outlook focused on adapting to a changing world. This combination of robustness and adaptability has helped Next sail through recent recessions and downturns while successfully transitioning from a leading store-based retailer to a leading online retailer.
