“Companies who invest properly in their business are winning,” said George Godber, manager of the CF Miton UK Value Opportunities Fund, highlighting John Lewis’s ‘click and collect’ service which has grown market share significantly.
“General retail as a whole doesn’t look great value, but we have a couple of smaller companies – Bonmarché and Conviviality, that owns the Bargain Booze brand – which have good management. There’s a focus on the bargain end of the market. We’re expecting AB Foods, for example, to produce a blowout number for Primark.”
Bargains on top
A similar story is seen in food retail, said Godber, with supermarkets such as Aldi and Lidl taking market share from Morrisons.
Of the larger retailers, Debenhams issued a profit warning on New Year’s Eve that saw its share price fall 12.2% in one day and chief investment officer Simon Herrick hand in his resignation. Today (3 Jan) Marks & Spencer is up 5% although analysts predict that when it reports next week, the firm’s numbers will be below expectations.
Colin McLean, chief executive officer of SVM Asset Management, puts this down to a combination of factors: “Anyone with too much high street space, too much diversification and not getting their online offering right will struggle. There’s no reason Debenhams can’t do that. It should be fixable.”
McLean is a fan of online clothes retailer Asos, as well as Dunelm. He also believes Poundland would be an attractive opportunity for investors as and when it comes to market.
Next, please
Meanwhile Next seems to be getting things right. After 32 years on the high street, and after almost going bust in 1991, figures show that the clothes retailer’s market capitalisation has now overtaken that of Marks & Spencer. The firms are today's top-two performers, up 9.58% and 4.59% respectively by mid-afternoon.
The management’s reputation for reliable, consistent delivery remains thoroughly deserved, in the view of Keith Bowman, equity analyst at Hargreaves Lansdown Stockbrokers. “Product selection, with knitwear this time a winner, is first class, while the group’s early adoption of a bricks and clicks [having both a high street and online presence] business model continues to serve it extremely well – the Directory business has again led the way.”
Martin Cholwill, manager of the Royal London UK Equity Income Fund, said the differing trading updates from retailers such as John Lewis and House of Fraser versus Debenhams shows that things are very much company specific.
Next, in particular, has been well managed for years and has shown huge capital discipline, he added.
"It’s a great example of how to get multi-channel retail right,” he said. “There are huge opportunities [within UK retailers] to get stock picking right or wrong. “I’d highlight Dunelm and WH Smith as two with similar capital discipline [to Next]. They stick to what they’re good at.”
