American shoppers dramatically reined in spending in February compared with the start of the year, amid persistently high inflation. But the Club’s defensive retail stocks, from discounter Costco Wholesale (COST) to coffeemaker Starbucks (SBUX), should continue to attract consumers in an increasingly volatile economic environment. U.S. retail sales fell 0.4% in February month-on-month, the Commerce Department reported Wednesday, in a sharp turnaround from January’s 3.2% gain . February’s decline was driven by a fall in auto sales, along with reduced spending at restaurants and bars. The retail figures come a day after the Labor Department said consumer prices rose 0.4% in February , bringing the annual inflation rate to 6%. That’s a drop from the previous month’s 6.4% year-over-year rise, but still well above the Federal Reserve’s 2% inflation target. Barclays on Tuesday called out a “more reluctant consumer,” with both high- and lower-income shoppers spending less on goods, according to the bank’s most recent credit card data. But spending on services, Barclays analysts found, has been holding up. Credit card data from Citi, published Wednesday, showed total retail transactions and dollars-per-transaction were down year-over-year in the second week of March. But U.S. consumer spending was strongest in cosmetic stores, according to Citi. That bodes well for Club holding Estee Lauder (EL). The U.S.-based cosmetics firm is also poised to benefit from the nascent economic reopening in China, where it does roughly a third of its business. Despite the pullback in spending, there are seemingly some items consumers can’t live without. Among Wells Fargo’s top-five hardline retail and restaurant picks, Club holding Starbucks (SBUX) on Tuesday was named a “top idea” among defensive stocks. The coffee giant is a “global leader in [a] high growth category,” the bank said. Like Estee Lauder, Starbucks is also benefiting from renewed demand in China — its second-largest market after the U.S. Meanwhile, UBS sees the warehouse retail segment as well-positioned to ride out any further fallout in the financial sector following the collapse last week of Silicon Valley Bank, analysts wrote in a note Tuesday. They highlighted the resilience of wholesale retailer Costco during the Great Recession of 2007-2009. “If consumer credit tightens, it’s likely that similar impacts would occur this time around,” they wrote. The Club take The recession-resistant retail stocks in our portfolio are well-positioned to weather the current bout of economic turmoil. That’s why we added to our position in TJX Companies (TJX) earlier Wednesday. The off-price retailer appeals to consumers looking for a discount on quality merchandise, particularly in a slowdown. Similarly, Costco is a perfect retailer to own in an uncertain economy, given it runs a volume-based business that continually offers low prices to its members. We’re also pleased to see that cosmetics purchases are holding…
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