With the country’s high streets facing another crisis as people work from home rather than travelling into town and city centres, it is hard to predict which stores and specific retail sectors, if any, will do well this year.
Yet we are not about to stop shopping altogether, and so selected retailers may represent more of a bargain from an investment perspective than anything you might find in the January sales.
Jason Hollands, managing director of investment platform BestInvest, says there are some strong reasons to put retail stocks in your investment shopping basket – despite the latest high street crisis.
Peerless: Next has outperformed its High Street rivals
He says: ‘The road ahead may well be bumpy, but some retailers which are coming under pressure from staff shortages, inflation and lower footfall will emerge from this difficult period in better shape as they trim costs such as underperforming stores.’
Barclaycard’s data on how we shopped last year confirms the popularity of online retailing, but it also shows some green shoots on the high street. Overall consumer spending rose almost six per cent last year compared with 2019, with growth in spending on the home, pets and in local stores notable.
Calum Bruce, investment manager of trust Ediston Property, believes that despite widespread talk about the death of the high street, physical shops will always be needed. He says: ‘While the pandemic has undoubtedly increased the penetration of e-commerce, busy car parks and queues around out-of-town shopping centres show the resilience of bricks-and-mortar stores.’
Not everyone is as bullish. Darius McDermott, managing director of fund supermarket Chelsea Financial Services, believes the high street is in ‘structural decline’.
He says: ‘High street retailers can’t compete. Matters will only get worse as the cost of online retail deliveries continues to fall and people are put off shopping as their local high streets are scarred by empty shops.’
Companies that can deliver an ‘omnichannel experience’ – allowing people to shop online or in store and to click and collect purchases – will fare well in the new shopping normal. They include stores such as Next and Waterstones.
William Meadon, manager of investment trust JPMorgan Claverhouse, is a big fan of Next. He says: ‘The fashion house maintains its reputation as one of the country’s best-run firms. It has outperformed expectations throughout the pandemic and its management team is without peer.’
Last week, it issued a bullish trading statement with profits for the year to the end of this month forecast to come in at £822million – some 10 per cent up on profits before the pandemic. It also announced a special dividend of £1.60 and forecast sales growth for the year ahead of seven per cent.
As inflation continues to rise, companies running stores that offer customers ‘good value’ should do well.
Although high-profile price discounters such as Aldi and Lidl aren’t available to invest in as they are private businesses, London-listed B&M could also benefit from shoppers tightening their belts and seeking out value for money.
B&M’s stores are located in retail parks and offer convenience groceries and cleaning products. It also operates 306 convenience stores under the Heron Foods brand. Its shares, currently £6.13, are up 15 per cent over the past year.
Lee Wild, head of equity strategy at investment platform Interactive Investor, likes online fashion brand Asos, a beneficiary of consumers buying more goods online. He adds: ‘Asos has also been helped by its target market – fashion-loving 20- somethings – who are happy embracing new technology when shopping for clothes.’
Asos issued a profits warning in October last year after being hit by supply chain issues. Its shares have also performed woefully over the last year –- down more than 50 per cent – but Wild says plans by the company to increase its presence in the United States and across Europe are ‘exciting and sensible’. He adds: ‘This could be a turnaround story to follow.’
Funds to consider for a spot of retail therapy
Not all investors are comfortable buying individual stocks, so buying an investment fund that holds shares in the retail sector – with a manager who understands the retail landscape – makes good sense.
BestInvest’s Hollands likes Premier Miton UK Growth, which has a 2.3 per cent holding in price discounter B&M. The fund has generated overall investor returns of 75 per cent over the past three years.
Hollands is also a fan of investment funds Slater Growth and Artemis UK Select which have respective holdings of four and 3.3 per cent in Tesco.
Supermarkets such as Tesco and Sainsbury’s, says Hollands, could be targeted in coming months by overseas buyers in the same way that Morrisons was last year, eventually being bought (somewhat controversially) by US private equity group Clayton, Dubilier & Rice.
Investment trust Fidelity Special Values has cycling retailer Halfords among its top 10 holdings. Halfords shares, Hollands says, still look cheap despite rising 32 per cent over the past year.
Chelsea’s McDermott suggests looking at GAM Star Continental European Equity and Janus Henderson European Selected Opportunities, which both own luxury goods retailer LVMH – owner of brands such as Dior and Louis Vuitton.
He says: ‘There is still a place for luxury retail. With an expanding middle class in many developing countries, as well as the middle classes in the developed world having had a relatively ‘good’ recession, demand for luxury brands will not go away.’
…or try property trusts that own sites
The commercial robustness of retail parks during the pandemic will not dissipate in the coming months.
Calum Bruce, manager of investment trust Ediston Property, says these parks represent the future – with many offering a mix of click-and-collect services and in person shopping. Most of the recent retail success stories are prominent in these out-of-town centres, including Dunelm, Next and Pets at Home.
But it is also possible to invest in retail parks by buying shares in the property trusts which own the underlying bricks and mortar – the Likes of British Land, Ediston and NewRiver.
Richard Williams, analyst at investment research company QuotedData, says these retail parks are ‘playing a key role in the boom in online retailing, providing an ideal hub for click-and-collect and online returns’.
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