Just went you thought it was safe to step back on to the high street, we lose another big name. Recent years has seen the end of the line for the likes of Woolworths, Jessops, HMV, Comet, Peacocks and Clinton Cards, but as one shutter closes another shop front opens.
From a stockpicker’s perspective, there are actually very few retail opportunities given so many are owned by private equity houses. However, the chances are your chosen UK fund manager will have some exposure.
Take for example, Adevora’s Jeremy Lang, who holds the ever-popular “safe, dull and boring” Next in his UK Equity Fund. He however is very reluctant to take a new position in Dixons Carphone despite its prospects to benefit from the fall of one of its largest rivals.
The honeymoon period
“Phones 4u was a pretty disruptive, desperate competitor and Dixons Carphone will profit from a honeymoon period where it will get the double benefit of a new customer base and the removal of what has been competitive price rival,” he says.
“One of the things I like is buying businesses where they has been a big compression in the way people view them and a lot of anxiety building up, but the opposite has now happened for Dixons Carphone.”
He adds: “There’s just not enough anxiety in the high street yet. We’ve come off of a period where generally retailers have done very well as people have realised that it is not quite so tough out there as everybody thought. Only in the past six to nine months have people become more nervous again, and that’s too early for me.”
For Justin Urquhart Stewart, director at 7IM, we are currently in the middle of a “complete redesign” of the retail sector, a process which will wash up its fair share of winners and losers.
He explains: “Technology changes have come in, which bypassed the likes of Woolworths and HMV, and let them go. Then there is the disintermediation with the telephone companies, and then changes in the businesses themselves because of what has happened in technology, so consumers are buying in a different way.
A new design
“Consumers are still going to be spending, with more confidence and credit card debt coming back in, but we need to be careful. Much of boom we’ve had from the £23bn of PPI fines being pumped into the system, which will start to ease at some stage. At the moment the retail industry is having to go through a complete redesign of what it is going to look like in the next few years.”
The upshot is, if a retailer has a product that people want, and can sell it in a simple and engaging way, then the changes are it will be a success. But what does this mean for the likes of Next, and other fashion retailers such as ASOS and Associated British Foods (Primark), which fund managers tend to gravitate to when they see an uptick in consumer spending?
“Next is still a risk because with any of those fashion retailers you are as good as your fashion,” adds Urquhart Stewart.
“They have perfectly good stores, and they are good online, but as Marks & Spencer will show you, unless you have got the product that people want you are just going to be bypassed. If you are an investment house and you can read fashion then that’s fine, but frankly I find that investment houses and fashion don’t go that well together!”
