The 2010s have been a rough decade for the retail industry.
The rise of e-commerce has pressured business models like department stores and malls and has forced once-ubiquitous retailers like Borders, Radio Shack, and Sears into bankruptcy.
Despite the challenges, there have been more than a few winners in the sector over the last decade, and a number of retail stocks rebounded strongly from the depths of the financial crisis a decade ago. Below are the best seven retail stocks of the decade, based on their performance starting on Jan. 1, 2010.
Image source: Getty Images.
1. Lululemon Athletica: Stock price is up 1,380%
lululemon athletica (NASDAQ:LULU) entered the decade as a high-flying growth stock and is exiting in much the same way. The stock surged in the early part of the decade as it recovered from a recession-era sell-off. For several years, however, share growth stagnated as the company struggled to recover from a recall of its pants for being too sheer and faced a backlash over unsavory comments from founder Chip Wilson, including blaming "women's bodies" for problems with the company's pants.
Despite those stumbles, the stock has surged under new CEO Calvin McDonald over the last two years. Comparable sales have surged by double digits, driving the rapid growth of Lululemon's high-margin business, especially in men's clothing and digital sales.
Image source: Lululemon.
2. Ulta Beauty: Stock price is up 1,310%
The cosmetics industry has seen strong growth over the last decade, driven in part by the popularity of Instagram (owned by Facebook) and the premium it puts on appearances. Among retail stocks, the biggest winner of that trend has been Ulta Beauty (NASDAQ:ULTA), which has soared more than 1,300% as it capitalized on the demand for beauty products and salon services. Ulta has also benefited from the need for consumers to visit brick-and-mortar locations to get a haircut or to try on makeup before buying, giving the business some protection from e-commerce competition. It's also been able to take advantage of ample real estate vacancies to grow its store count from 346 to 1,241 over the course of the decade.
Image source: Ulta Beauty.
3. O'Reilly Automotive: Stock price is up 1,050%
Auto-parts retailers have been surprisingly durable in the e-commerce era. With a vast selection of specialized products in stores, knowledgeable employees who can provide answers you can't get online, and a speedy delivery network to serve commercial garages and individual users, companies like O'Reilly Automotive (NASDAQ:ORLY) have bucked the retail malaise to deliver steady growth.
O'Reilly now has 5,420 stores across the country, up 2,000 from a decade ago, and profitability has expanded as the company further penetrated the "do-it-for-me" market with its 2008 acquisition of CSK Auto. That move and steady comparable sales growth led to its operating margin doubling in the last decade.
Image source: Getty Images.
4. Ross Stores: Stock price is up 983%
Off-price retailers like Ross Stores (NASDAQ:ROST) have been big winners over the last decade. While conventional apparel chains like Gap have come under pressure in recent years due to the rise of fast-fashion competitors like H&M and e-commerce, off-price chains have thrived. Employing a model that sells name brands for 20% to 60% less than competing department stores, Ross has grown quickly over the last decade. The off-price model is not easy to maintain through online channels because it relies on fast product turnover of ever-changing merchandise. Ross's store count, which also includes dd's Discounts, has nearly doubled over the past decade, and comparable sales have consistently increased, driving profits higher.
Image source: Ross Stores.
5. Burlington Stores: Stock price is up 806%
Another off-price star, Burlington Stores (NYSE:BURL) wasn't even trading on the market 10 years ago. The company went public in 2013 and, like Ross, has shown the power of the off-price model. CEO Thomas Kingsbury sees the company's strengths as maintaining its everyday-low-prices model and giving customers the thrill of the "treasure hunt," meaning its merchandise assortment is always changing, and shoppers never know what they'll find.
That formula has been undeniably successful: The stock has exploded since its 2013 debut. Today, Burlington continues to deliver solid comparable sales growth and expanding margins and is opening new stores.
Image source: Burlington.
6. AutoZone: Stock price is up 680%
Like O'Reilly, AutoZone (NYSE:AZO) has also been a big winner over the last decade. Benefiting from similar trends, AutoZone stock has jumped nearly 700% as the auto-parts seller has proven its staying power. The company also benefited from starting the decade with a cheap valuation and from aggressively buying back shares, reducing its share count by about half. Meanwhile, solid comparable sales growth, new store openings, and bullishness about the aftermarket auto-parts sector due to a growing used-car market have all lifted the stock in the last couple of years.
Image source: AutoZone.
7. Home Depot: Stock price is up 640%
The leading home-improvement retailer has become the second-most-valuable U.S. retailer (behind Walmart) thanks to its strong growth over the decade, fueled by the housing recovery and a number of strategic decisions. Home Depot (NYSE:HD) essentially stopped opening new stores over the last 10 years, and instead, it invested in technology and e-commerce, improving customer service, and returning capital to shareholders -- its dividend payout has surged over that time.
Though the stock's growth has slowed more recently, the company continues to see solid comparable sales growth as demand for home-improvement products grows.
Image source: Home Depot.
What's left
You might notice a pattern here: Retail stocks focused on home improvement, auto parts, off-price and discount, and high-end products that tend to flatter one's own image have done the best over the past decade. But they have another key factor in common. With the exception of Home Depot, all of these stocks were small at the beginning of the decade, with market caps of $10 billion or less. Lululemon and Ulta, the two best performers, were worth the least 10 years ago.
To find the kind of multibagging returns on this list, it helps to start small. By contrast, well-known names like Walmart and Target actually underperformed the S&P 500 over the last decade, as have many of the country's biggest retailers. Even Costco, which has executed as well as any brick-and-mortar chain, failed to make the list, even though it has increased about 400%.
Many of these companies are well-positioned for continued growth, but we're likely to see a whole new group of top-performing retail stocks for the 2020s because growing by 600% or more is much easier when you start as a small company.
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