While traditional retailers have been hammered this year on tariff concerns, many investors have concluded that discount retailers are taking key steps to prosper and outperform amid the trade turmoil. “Against a somewhat volatile consumer sector backdrop, we see increased investor appetite for recession-resistant and defensive stories,” wrote Credit Suisse retail analyst Judah Frommer, in a story in Barron's.

Major discount chains include Dollar General Corp. (DG), Ross Stores Inc. (ROST), TJX Companies Inc. (TJX), Five Below Inc. (FIVE), Burlington Stores Inc. (BURL) and Dollar Tree Inc. (DLTR).

Revamped Supply Chains

As consumers continue to value lower prices and convenience, shares of these companies are poised to thrive even if tariffs rise. While both discount and traditional retail stocks rose on Thursday's latest trade talk news, many investors remain skeptical regarding a deal between the U.S. and China. As a result, they have given many discount chains a vote of confidence as they revamp their supply chains to adjust to the tariff threat. “We’ve negotiated price concessions, canceled orders, modified specs, evolved product mix, and diversified vendors,” said Gary Philbin, CEO of Dollar Tree, per Barron's. 

While the SPDR S&P 500 Retail ETF (XRT) is essentially flat in 2019, many off-price retailers have tacked on double-digit inclines such Burlington, which is up 24.8% YTD, Dollar General up 47.6% and TJX, up 24.6%.

Dollar General's Edge

One stock uniquely positioned to thrive is Dollar General, due to partly to the company’s low exposure to China. “The retailer operates with a sales mix heavily skewed to consumables—75%—that are not subject to China tariffs,” wrote Guggenheim analyst John Heinbockel, per Barron’s.

Analysts also cited “healthy comp momentum” between 3% to 4%, and plans to cycle “significant promotional investments in the fourth quarter,” expected to “bolster profitability in the most important period of the year.” In the recent quarter, Dollar General posted top and bottom line figures above the consensus estimate. 

What’s Next

To be sure, a sharp falloff in trade tensions may lessen these discounters' attractiveness. But more than tariffs are attracting consumers - and investors - to these retail chains. As the economy slows, both consumers and investors will be looking at these companies for both bargains and sustainable growth.