Serious headwinds
Brewin Dolphin analyst, Nicla Di Palma, agrees that even in a world where the UK consumer was very strong, BHS would still have faced difficulties that are specific to it, but added that the whole sector has been hit hard in recent months.
“The sector is being hit by some serious headwinds. The depreciation of sterling is affecting costs and while the oil price is lower, people are spending more on housing and the money that is available is increasingly being used on experiences, rather than things like clothes,” she told Portfolio Adviser.
Russ Mould, investment director at AJ Bell agrees that the sector has had a torrid time of late, pointing out that, at an index level, it is down 8% so far this year, placing general retailers 36 out of 39 industry groupings.
But, he adds, not all general retailers have done poorly, Darty has more than doubled, JD sports has jumped significantly and Boohoo.com is up more than 50%
“All of this goes to show how hard it is to get to the top of the retailing foodchain, let alone stay there, as firms have to contend with price sensitive, internet savvy consumers, as well as cost pressures created by the Living Wage and the need to build and maintain a state-of-the-art website.
Nor are these indeed, uniquely British concerns, Mould added: “Perhaps there is a bigger picture here, namely that we are late in the credit cycle and consumers are unwilling – or unable – to take on much more credit as they prioritise daily needs such as rising property prices and rents, the long-term need to provide for pensions or healthcare or pay off debts incurred during their student days.”
So, where does this leave investors?
As is already evident, there is a growing difference in performance between those retailers that can adapt to the changing world and those that can’t. But, there is also very little doubt that the sectoral headwinds are unlikely to ease any time soon.
