The recession is creating winners as well as losers

I argued back in December that the recession will create opportunities for good businesses to capitalise upon weaknesses in competitors.

Six months on, I thought it would be interesting to review whether there were signs of this actually happening. In particular I thought I would look for beneficiaries from the fall of MFI, Woolworths and Zavvi, the three companies I highlighted as creating opportunities in my blogs on 13th and 14th December, and for beneficiaries from sectors that have gained from the recession. And the evidence is amazingly clear.

The share price of Home Retail Group, which owns Argos and Homebase reached a new peak in April. Whilst they are suffering from the consumer downturn, they explicitly highlighted growth in video games (a key product at Zavvi & Woolworths), in kitchens (ditto MFI, and as people invest in their existing property rather than move) and in vegetable seeds (as people don’t move and grow their own to save money).  Indeed the Chief Executive notes that Argos is benefiting from the demise of Woolworths by becoming the ‘natural home’ for its shoppers.

Meanwhile, HMV reports annual profits at the upper end of expectations with a market defying double digit volume growth in CDs and DVDs as it picked up business and stors from its failed competitors, presumably including Woolworths and Zavvi.