The Gap Inc. (GPS), Costco Wholesale Corporation (COST): Retailers Find Solace in Solid Brands

Retail sales were up in June, according to the Commerce Department, but not as much as everyone had expected. The increase is good news, but the change in the rate of the increase is bad news. You can add it to the pile along with accelerating factory growth, a rise in new home furnishing sales, and all the other economic news that’s been swirling this year, and then you can draw your own conclusions about how a 100,000-employee company uses that information to do anything other than stare at one another in a boardroom.

Last week, a few companies announced that they had managed to succeed in June, even in the swirling winds of the global economy, but those companies are the outliers. Luckily, outliers are good news for investors.

The common thread of success
The thing that holds the winners together isn’t price, demographic, or region — it’s understanding. Understanding that their businesses target a specific kind of person, and that that person is affected in a different way than all the other people in the world when things get bumpy. Maybe they spend more, maybe they spend less, maybe they go online, but something changes, and anticipating that change is the only way to succeed.

Instead of looking for companies that are poised to take advantage of the next big swing, investors have been winning by looking at companies that don’t care what the next thing is but know what their customers want.

On the apparel side, The Gap Inc. (NYSE:GPS) rocked a 7% increase in comparable sales — sales in stores open for more than a year — over June. The leader of the pack was Old Navy, which had an incredible 13% increase in comps in June, due to the company’s strength of brand. What The Gap Inc. (NYSE:GPS) understands is that its customers want reliable, consistent, and branded products. By hitting those key drivers, it can keep demand high, reacting to price pressure through small promotions instead of widespread discounting.

In the broader market, Costco Wholesale Corporation (NASDAQ:COST) proved itself again by showing that it, too, understands what its customers want. The company increased its comparable sales by 6% across the board. It kept its foot on the gas, bringing in customers who are looking for good prices on merchandise. By keeping its overhead costs low and delivering consistent experiences across the country, Costco Wholesale Corporation (NASDAQ:COST) has been able to keep customers interested, even as economic conditions flounder.