Costco is the league leader in the members-only warehouse store model. While the firm's 430 stores worldwide fall short of the numbers seen at Wal-Mart unit Sam's Club, Costco makes more money. In fact, with big-ticket items buoying COST's check-out lines, the firm's sales per square foot come in at nearly twice what its biggest rivals turn out. The membership model is extremely attractive for Costco shareholders and customers -- it enables the firm to offer paper-thin margins on the products it sells, but still earn significant net income from membership fees. And since consumers are less likely to carry memberships from competing wholesale clubs, Costco's existing base of higher-spending customers gives the firm a shallow economic moat versus its peers.
Financially, Costco is in stellar shape, with $5.6 billion in cash offsetting a paltry $1.4 billion debt load. Revenues have been climbing in stair-step mode over the last several years, and the recession barely registers as a blip for the firm. That combination of financial wherewithal and growth make Costco a good option for investors looking for a stalwart retail name.
In the apparel business, brand matters. That's why Ralph Lauren's (RL) recognizable label has help to build the firm into a $14 retail behemoth. Obviously, retail isn't RL's sole market -- the firm's several hundred retail stores are dwarfed by 11,000 third-party retailers that sell Ralph Lauren products. But because this stock sports a sector discount, and because retail is key to RL's growth strategy, the firm makes our list.Retail matters for Ralph Lauren because it's the key to pricing power. While RL needs exposure in department stores to keep its sales volume high, the firm can extract comparatively huge margins through its full-price stores around the world. International exposure is a big deal for RL too; because the firm is a recognizable luxury apparel brand the world over, it's seen as an easily attainable status symbol for burgeoning middle class populations in emerging markets. That's why adding onto the firm's 100 full-price stores overseas should continue to be an extremely effective use of capital in 2013.
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