Corporate Darwinism: Only the strong survive

updated 2:30 p.m. ET Jan. 2, 2009

NEW YORK - 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.

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