Recession Proof Industries?
What industries have you noticed that have continuous growth regardless of recessions?
Is there one particularly that surprised you?
Is there one that you think is not so safe anymore?
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Here are a couple to kick things off:
Insurance brokerages: During the GFC, organic revenue growth for the insurance broker industry was between 0% and -2%.
Quick service and fast service restaurants: QSR experienced 0.2% same store sales performance in 2009, while FCR saw a -0.2% decline (compared to -4 and -16% for full service restaurants and fine dining, respectively).
The cosmetics industry has continued to climb for years
From what I've seen theres a huge boom in it rn, and will probably decline just bc the trend right now is a LOT of makeup. I'm assuming this will be followed by a period of less is more
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I think the pet industry is one for sure. People see animals as their family and the purchasing of pets as well as their toys etc has not dropped
Yeah I actually just saw an article on that the other day. Peoples spending in that industry has actually skyrocketed because millennials have more pets than prior generations
Disagree, I interned at a fund that made an investment in a pet-focused business which got clobbered during the financial crisis. Their reasoning was similar to yours and proved to be incorrect.
Funeral homes are pretty recession proof.
Now that you mention that I would assume the wedding industry is as well. Death, marriage, and pregnancy are the times where I feel like no one really counts their pennies
Yeah. I can definitely see that. Though I'm sure it's easier to cut back on wedding expenditures (especially the extra lavish stuff). I feel like there's more lavish wedding spend than funeral spend. Most people do basic funeral services, not much room left to cut out any expenses.
Cheap retail usually does well as well (paper products, cups, plastics, napkins, etc).
Heh.
I used to work in a Hospital on the Finance side. Death and marriage might be recession-proof, but pregnancy is not.
Guns and ammo are pretty recession proof. So fuck, marry, kill. Either way you’re contributing.
I'm not sure this is as true as the conventional wisdom would make you think. Volumes might not get hit during a recession, but funeral homes make their money on upselling to nicer services, floral arrangements, caskets, etc.
Yeah, looking at performance of the main public players, they get shattered during recession (70+% drop). For sure not recession proof.
Great point. As a side note, funeral casket manufacturers have seen consistent declines in recent years as there is a growing interest for cremation due to the lower cost.
Fair point - I would be curious to know if there would be a slight up tick in death toll during recessions thus offsetting the loss in up sell. Either way people are always dying as morbid as that that
on that sector though, the traditional funeral service providers are being challenged as people move more to cremation services to cut back costs
I don't think this is true. Sure, people keep dying, but their loved ones' ticket on mortuary expenses is definitely discretionary. Source: Six Feet Under
With the decrease in general religiosity, cremation has become more common and this has reduced the average revenue per customer for the death industry.
Source:
alarm monitoring
There are some very mediocre answers above. If you don't think spending on pets and weddings would be slashed if we were to hit a big and prolonged recession, you'd be very wrong.
As mentioned, insurance, fast food, and funeral homes would likely do just fine. Booze and cigarettes too. Utilities.
In past recessions people were surprised that pet spending went up. I was taking a flyer on the weddings though
There is literally so much data to evidence of pets being recession-proof you just have to google it... In times of recession, humans will literally lower the quality of their diets to maintain the quality of their pets.
thats what i've read as well
I guess this is why I don’t own pets. I would literally eat my dog before I reduced my food (or booze) consumption.
Utilities
Yes unfortunately haha
This
Alcohol
Yep if anything that probably goes up!
It does
Not necessarily, as it seems that heavy drinking / smoking seems to decline during recession because of monetary effects though some people may increase their low consumption behaviour compared to pre-recession standards. There are some interesting papers on this topic in regards to health and recession (e.g. Ruhm 2000, 2015 and Jofre-Bonet, Serra-Sastre and Vandoros 2018)
Software as a Service (SaaS) was remarkably resilient during the last recession. Companies didn't upgrade hardware during the downturn, but they still had to maintain their software licenses and support agreements to continue to operate. SaaS companies are now able to command higher leverage because of how well they performed in the last downturn.
Great point. I definitely see that now
I think this is the best answer in this thread
Are these all custom negotiated contracts? In recession, is there risk of the incrementally struggling company demanding lower pricing for SaaS? Is there an alternative to mix-down for some services? Those are the risks that jump out to me
Solid points. I probably didn't answer the question exactly as asked. SaaS was very resilient, but I'm not sure we could call it counter-cyclical or "recession proof". That said...
These are generally pretty sticky relationships. Consider what it takes for a company to switch software systems in terms of time, energy, and money. High barriers to switching means the customer probably doesn't have a ton of leverage when it comes time to renegotiate a subscription to an already-implemented system.
Video games: back in the 07/08 crisis call of duty sales hit record highs
Would argue that it was also a function of the quality of COD's. COD 4 released in late 2007 was (and might still be) one of the best COD's made.
Video games will not do well in the next recession
why do you think that? genuinely curious to hear the conflicting opinions
how does healthcare fair in a recession?
Pretty well. People always get sick (perhaps more so in stressful times) and still need drugs and hospital services. In countries with national health services, recession may lead to cut backs but that may simply mean an increase in the use of generics (still good if your company has a generics arm) and more careful about giving out expensive exams like MRIs and so forth.
Depending on if you mean hospitals, medication, etc or new biotech inventions.
I think The Pharma Guy got it right. people will always take care of their health and as long as insurance can pay it off then that area should b safe
My opinion is that the true beta of healthcare is understated. The average healthcare monthly expense (whether paid by self or by employer) is almost as high as average housing bill nowadays and continues to inflate high single digits. This might not be able to survive a recession, especially with laid off folks having to pay out of pocket. Political backlash could be the catalyst. And lots of players in the industry are over-earning so there is room to give up returns.
Hospitals historically got clobbered on non-collectible accounts for emergency room visits, etc. Healthcare expenses have been a leading cause of bankruptcy. Not sure if Obamacare has improved this. It may have taken some beta out of the hospital industry, but reimbursements are probably lower in general. Meanwhile health insurance costs have continued to soar.
I'm guessing the food industry ?
Sure people may not eat out as much or get delivery but supermarkets and fast food restaurants wouldn't really suffer that much.
Probably the industry as a whole will be okay but I do think a lot of brands will struggle if they are a more lux product that people can't afford to buy
You have to think in terms of both unit volumes and ASP. Higher priced, higher margin products may suffer driving down total sales.
I think a broad way to see this is based on price elasticity. If you're in an industry where the product or service in price elastic then you may not do very well e.g. tourism or travel. If you're tight on money you don't travel. If your industry is price inelastic then you'll probably be ok for the most part e.g. fast food or pharmaceuticals. You can't spend as much on food? Fast food is still your cheapest option. Dying of cancer? You still need that life-saving drug.
Now there are some exceptions to this rule but they tend to be replacement industries. Video games are relatively price elastic (if the price of Fifa went from say $50 to $80 fewer people would buy it) but since video games replace other activities in times of recession, such as going out or going on holiday, they are semi protected.
You also need to look at the fragmentation of the industry and if there are tiers of luxury. Someone above mentioned cosmetics, but the main tranches doing well are lower-end and luxury cosmetics. Why? Because the rich will continue to buy luxury cosmetics as they are barely affected and the average person will have to spend less on their $40-50 cosmetics and drop to the $20-30 ones. This is the same principle that applies to fast food joints - they are at the budget end of the "eating out" industry.
How i feel being able to understand your post after taking intro to microeconomics this past semester
did you search "LSD trip" for this picture hahaha
Dollar General and Wal-Mart are already smashing earnings. Discount box retailers will do ok as everyone pares back their spending and figures out what they can downgrade to (Target -> Wal-Mart, Wal-Mart -> Dollar General, etc.).
I think the Wal-Mart "consumer exuberance" or "confidence" or however they put it is a little overstated, and I'd be interested to know how many unique customers they had vs. revenue.
Definitely agree with Pharma Guy that it is all about price elasticity.
I wonder how amazon will be affected by it. I mean amazon is massive so I can just look at the whole thing and guess. Grocery delivery might go down but other things might go up.
Will be interesting to monitor
How do FIGs fair?
not good - reliant on economic and consumer welfare growth. Most FIGs, such as banks and asset managers, depend on money flowing in from customers which will be decimated during a downturn. However, certain forms of insurance companies may fare ok.
Wouldn’t this cause banks and thrifts to consolidate?
If you want to make 80k a year guaranteed become an elevator mechanic in a major city
porn
I've bought Telecom Argentina bonds after the primaries, so that's that.
Parking assets seem to do relatively well during recessions. Its an interesting sub sector in real estate that I feel gets overlooked more times than not.
If I had extra money I would literally own a storage building and a few parking lots. It pays for it self with low maintenance cost.
Inferior or inelastic goods my man. We're talking frozen pizza, pies and beans. Poor middle class families..
COAL, STEEL, AND AUTOMOTIVE
booze?
People were saying yes and no on this one. I would assume that as well
My understanding is volumes are unaffected or even go up, but consumers pivot towards lower-priced products. Premium brands suffer, economy brands thrive.
What we haven't seen yet is how alcohol responds in a recessionary environment where marijuana is legal. There's already question about whether pot will steal share from alcohol. Will be interesting to see consumer reaction during a downturn with this new factor in play.
Low-end probably sees increased demand
Mid- and high-end get destroyed by mix down of demand I’d guess
You may notice all of these are services and not product - people can delay the purchase of products or switch to cheaper ones, but certain sticky services are usually harder to let go of. That's also why as someone else mentioned, SaaS (especially day to day SaaS providers for enterprise clients, not bells and whistles ones like a lot of martech) can do well in a recession. I guess we'll find out about that
Large aircraft lessors - Contractual revenue streams on critical assets for airlines, lasting years into the future that provide significant visibility into their future earnings.
Consumer staples such as toothpaste, and toilet paper.
I'll tell you what won't do well - all these tech unicorns with negative cash flow selling unnecessary but convenience based products largely to DINKs and HENRYs - Uber, Doordash, Blue Apron, etc.
Will be kinda funny when all these post 2010 college grads accustomed to free lattes, ridiculous free food (ie braised duck and gnocchi for lunch), work remote abilities, and unlimited vacation days experience the realities of a recession.
did someone wake up on the wrong side of the bread today?
Ha. Nah. Does sound overly bitter, just making a joke.
Plenty of hedge funds are going to get blown up too, considering the average hedge fund doesn't even outperform the S&P 500 after fees...
Don't hedge funds tend to perform better in down markets?
Cable / telco, utilities, mission-critical SaaS, healthcare / pharma, waste management, funeral homes, dollar stores?
McDonalds
Apartments catering to the middle-market, waste management/collection, debt collection, alcohol/marijuana/tobacco, bankruptcy consulting/attorneys, fast food, utilities, discount stores, temporary hire agencies, self storage facilities, and RV/trailer parks.
totally agree but it makes me fucking depressed
Finance often makes me fucking depressed. High finance at the top involves a tiny amount of people gobbling up all of the assets producing cash flow streams which serve the bottom base of Maslow's hierarchy of needs pyramid. Price inelasticity and lack of substitute product is king.
Trades - plumbing, etc. just a wild guess
Would imagine a lot of trade work like plumbing is done on new construction, so not sure if that would translate well when no one is building
I'd say Healthcare is the most obvious one here. Investors currently stock up on their healthcare assets as they view them as the safe haven in the upcoming recession and we therefore see a lot of activity here in Europe right now. PEs basically jump at every HC opportunity they can get and pay well above avg control premiums, especially in the care homes and hospitals space.
Nothing is 'recession proof' but I think some good 'recession-resistant' industries include healthcare (all forms, especially healthcare delivery and basic pharmaceuticals),, utilities (water, power), and many food commodities.
CMBS. The housing market is rock solid. Can't see any possible downside. Lever up suckers.
Oil & Gas. America runs on gas, not going to change in a recession.
Travel & Hospitality. Even the schmucks of the world need to get take a break from being poor in the midst of a recession, in fact, most people probably need to blow off more steam during one.
Automobile Industry. Self-explanatory. No matter how broke I become I'm not taking the train to head back to CT for the weekend just so I can catch my brother's lax game at Taft.
Maybe I missed it, but Prison REITs would likely do very well.
Recession > super progressive democrat elected > private prisons get crushed
Car parts distributors.
People buy less new cars. The subcontractors for the automakers try to ramp down their production lines, but end up spinning off a ton of extra parts that aren’t being used in new cars that aren’t being made.
Simultaneously, people with old cars, who would otherwise upgrade to something new, look for discount spare parts when making out of warranty repairs.
I’ve seen distributors with substantial growth through the recession.
Saw someone else comment here, but funeral homes are solid - people have less expensive funerals, but no one stops dying. Downside cases for them are pretty low.
Similar situation with assisted living on the high end. People might let mom or dad move in instead of sending them to a home if they’re “with it”. For places that deal with Alzheimer’s and dementia though, the inflow never stops. I’ve seen places that will actually get put liens on children’s houses when the parents a checked in if their overall financial picture isn't strong enough - the home is getting foreclosed on before mom/dad gets pulled out.
healthcare hands down. Always safe . Also relationship advisory business - recession or not people will always break up with their spouses, girlfriend, dog , wtf.
I imagine liquidation companies clean up. Does anyone know of any pure play public liquidators?
Senior living/nursing home hands down.
At the middle market absolutely. For new developments, rental rates have climbed so high that many seniors are opting out entirely and just moving in with kids.
Medicine by far
.
Agriculture is pretty insulated. The end use of Ag products may change, but the raw material certainly does not. In times of recession, people don't necessarily eat less. perhaps they change brands and buy the off brand, but the same raw product goes into it.
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