Goldman Sachs indicated yesterday that a "mild" recession may be coming to the U.S. in the middle of 2008. The recession will cause a consumer spending slowdown that will drive more customer traffic to low-price stalwarts like Wal-Mart Stores, Inc. (NYSE: WMT) and Costco Wholesale (NASDAQ: COST).Goldman Sachs analyst Adrianne Shapira noted that a "second-half margin recovery could be at risk if retailers do not plan prudently enough." So the question is this: will consumers flock to the safe haven of low prices as a defense against higher inflation and a recession? Of course they will. As reported this morning, 2007's inflation rate was the highest in 17 years.
Shapira went on to say that sales and margins at department stores will be the hardest hit, with EPS declines to the tune of 23% in some cases. Should this cause you to dump shares of JC Penney Co. (NYSE: JCP), Kohl's Corp. (NYSE: KSS) and Dillards, Inc. (NYSE: DDS)? For long-termers, no. But be prepared for a bumpy ride as consumers flock to the cheapest of the cheap retailers.
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