/ UK RETAIL /
been very cautious on this sector
for a long time – there are a lot of
headwinds. In the UK we’ve got the
minimum wage rising quite fast
at the moment, which affects a lot
of counter staff at retailers, adding
more pressure.”
there are plenty of bricks and
mortar retailers that are growing
– and playing to the consumer
squeeze is key. His holdings in
Shoezone, convenience store chain
McColl’s and Bargain Booze-owner
Conviviality have performed well
thanks to a combination of renting
units in cheaper areas, discounting
and an astute awareness of
customers’ needs. Matt Hudson,
co-manager of the Schroder UK
Opportunities fund, points to B&M
– an everyday essentials retailer
that is expanding fast: “B&M is
putting down more space, but it
buys in bulk and sources well from
Asia. It’s a price-competitive model
set up to ensure that low price is
passed on to consumers, and they
seem to like that.”
POUND SALE
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SPECIAL SAUCE
trustnet.com
350% Games Workshop (311.01%)
300% ConvivialityRetail (93.93%)
250% McolsRetail (48.84%)
200% FTSE All Share (13.10%)
150%
100%
50%
0%
Source: FE Analytics
trustnet.com
ay
-50%
Despite all this doom and gloom,
managers insist there is hope for
Britain’s high street retailers. Perhaps
unsurprisingly, one of the most
important survival factors is an
online offering. Ashworth points
to Next – one of the few fashion
retailers that is holding up in the
current environment – as a case
in point: “The trend is very clearly
towards online and what we have
to look for as investors are the
businesses that are best placed to
withdraw from the high street. For
me, Next fits this bill. The average
Businesses that provide specialist
products and services are also more
likely to thrive and Henderson and
Hudson point to Halfords as an
example: “Halfords is a destination
if you want to motor or bicycle, so
it has a role as a high street retailer
as it is not something that’s easy
to do online. Specialists can buck
trends more easily than generalists,”
Henderson argues.
PERFORMANCE OF STOCKS VS INDEX IN 2017
SURVIVORS AND THRIVERS
back-to-basics German discounters
Aldi and Lidl have stolen a march
on British stalwarts such as Tesco
and Sainsbury’s. Williams explains:
“It used to be that people looked for
the widest range. Now many are
happy with smaller local retailers
[where] you don’t need to choose
from 15 types of pepper.”
While this has not yet extended
far beyond groceries, Williams
says this could be a trend to watch:
“There’s a pattern where people are
getting tired of having too many
things. I think they are changing
their behaviour a bit.”
rental lease on its stores is around
seven years, so it can get out pretty
quickly, while it is growing purely
through online sales.”
Shutting up shop isn’t the only
option. As Henderson observes,
“Games Workshop is totally fan-
based. The people that buy this
product would find this store if it
was 100ft underground”
In addition to these longer-term
challenges, the UK’s vote to leave
the EU in June 2016 – and the
subsequent sharp devaluation of
the pound – has hurt businesses
across the board, although once
again, it’s retailers that are taking the
heat: “I think sterling was overdue
a correction, but for businesses that
import a lot of what they sell – and
that is predominately retailers – that
has been a problem, without doubt,”
says Ashworth-Lord. Williams
concurs, adding the currency hedges
that savvy importers may have
purchased pre-Brexit will now likely
be expiring, adding further cost-woe
for some retailers.
Perhaps more important,
however, is the effect that
shrinking sterling has had on the
UK consumer. Inflation has been
glued to the floor since the Bank
of England embarked on its titanic
monetary stimulus programme in
2009, however Brexit has pushed it
back up to pre-crisis levels of more
than 3 per cent. While this in itself
is not bad news, wage stagnation
has provided a double whammy:
“Simply put, wages are not rising
as fast as prices and that squeeze is
onerous. Sterling has strengthened
of late, but despite this – and rising
employment – the consumer is
struggling,” says James Henderson,
manager of the Henderson
Opportunities Trust.
Even more worrying for
investors, though, is the most
recent trend to emerge among
consumers: that of not – in-fact –
consuming. This is most evident
in the supermarket sector, where
In no company is the specialist
dynamic more evident than fantasy
board game manufacturer Games
Workshop – the best performing
stock on the FTSE All Share last
year – and a standout performer
for Ashworth-Lord: “That is really
specialist and totally fanbased.
The people that buy this product
would find this store if it was 100ft
underground.”
As Games Workshop shows, a
strong brand encouraging a loyal
customer base still has a role to
play in retailing – despite price
becoming ever more important.
For Hudson, ur ban streetwear
label Superdry is another good
example. Launched in 2004, the
brand has grown through the
label-love of the mid 2000s to
emerge as a staple for mid-level
consumers, while its expansion
into Asia and the US is providing
support. “In the UK, [Superdry]
only has 100 stores, but the real
strength has been the way it has
distributed the brand globally.
It’s on trend with the growth of
athletic leisurewear and we’ve
seen lots of stocks in that area do
really well,” Hudson says.
The future of UK retailers is
perhaps more uncertain than it
has ever been. The pace of growth
in online retail has caught many
investors by surprise and if Moore’s
Law is anything to go by, it’s not
going to slow down. The more
short-term headwinds buffeting
the sector – namely the post-Brexit
consumer squeeze – will die down.
However, retailing is going through
a fundamental shift and investors
must ensure they pick the winners.
Hudson summarises: “The most
important thing is that retailers
acknowledge these changes in
consumer behaviour, how they
impact their businesses and have
the flexibility to take on that
challenge. Those that can embrace
the change will survive.”
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