Recessions Are an Opportunity as Much as a Threat

investment strategy Dec 13, 2022
The strong acquire the weak during recessions

For most companies, recessions cause a short-term dip in earnings and perhaps even dividends, but recessions are also an opportunity for the strong to take market share from the weak.

That’s because recessions cause more damage to weak companies, with many of them failing during the recession or shortly after, at which point their customers switch to a stronger competitor.

Fashion brands and retailers are very economically sensitive, so Next, BHS, Debenhams, Topman and Topshop have all been good examples of this dynamic over the last decade or so.

On the one hand, Next (which is in my personal portfolio and the UK Dividend Stocks Portfolio) is an example of an exceptionally well-run business, combining a robust balance sheet with a long-term outlook focused on adapting to a changing world. This combination of robustness and adaptability has helped Next sail through recent recessions and downturns while successfully transitioning from a leading store-based retailer to a leading online retailer.

On the other hand, BHS, Debenhams, Topman and Topshop all suffered from owners that were interested in extracting as much cash as possible as quickly as possible, and in the process these companies were saddled with huge debts, demotivated staff and outdated infrastructure.

Each of these poorly-run businesses has struggled since the 2008-2009 financial crisis and the pandemic finished them off. Their failure benefitted Next as it was able to hoover up customers who had been let down by these underinvested and unsatisfactory businesses.

A similar story played out in November with the demise of, a once-leading homewares retailer. was valued at £775 million in mid-2021, but strategic errors during the pandemic led to its collapse in November. Shortly after went bust, Next hoovered up the brand for £3.4 million and will probably hoover up many of its customers as well.

As one somewhat unsavoury saying puts it: The weak are meat and the strong do eat.

The UK Dividend Stocks Newsletter

"An excellent newsletter with a real commitment to transparency" - Edward Page-Croft, CEO of Stockopedia

  Full list of all holdings in the UK Dividend Stocks Portfolio

 Detailed reviews of every buy, sell, trim and top-up decision

 Brief reviews of all quarterly, interim and annual results for all holdings

 Unique UK dividend stock screen covering almost 200 stocks

 In continuous publication since 2011


The UK Dividend Stocks Blog

Get the latest blog posts sent straight to your inbox in no more than one email per week:

Monthly Top 40 High-Yield Blue-Chip UK Stocks list

Detailed reviews of UK dividend stocks

 Updates on the UK Dividend Stocks Portfolio

 UK stock market and housing market valuations

No spam. Unsubscribe anytime.

This website provides information, education and tools for investors. It does not provide financial advice or recommendations to buy or sell any specific investment. If you're not sure if an investment is right for you, you should speak to a regulated financial adviser. Please read the disclaimer for more details.