Business

Changes on the high street mirrored on the stock market

The closure last week of BHS has evoked memories of the collapse of Woolworths in 2009
The closure last week of BHS has evoked memories of the collapse of Woolworths in 2009 The closure last week of BHS has evoked memories of the collapse of Woolworths in 2009

SINCE the demise of BHS last week, many headlines have focussed on the difficulties of the retail sector and it evoked memories of the Woolworths closure in 2009. And coming hard on the heels of Austin Reed, a retailer of a rather different ilk, it does beg the question of what a retailer has to do in this day and age to perform well.

The changing phases seem to be speeding up. Poundland, feted by many when it was floated on the stock market, has not had a smooth ride and even Primark (owned by Associated British Foods) has not had a totally trouble-free time recently.

Changes on the high street have been mirrored by changes on the stock market. There was a time when few investors would have thought of having a portfolio without Marks & Spencer – it is rather different these days and many investors avoid the general retail sector altogether. There are in fact now five general retailers in the FTSE 100: Marks & Spencer, Next, Burberry, Dixons Carphone and Kingfisher. With its significant subsidiary of Primark it is not unreasonable to add AB Foods to this list.

The market has so far had a somewhat indifferent performance this year, with the FTSE 100 showing a somewhat uninspiring fall of 0.52 per cent since the beginning of the year. Notwithstanding the uncertainty generated by the forthcoming Brexit vote, the individual retail stocks have put in very mixed performances.

Former stock market favourite Next has, in fact, been the worst performer, with a fall in its share price of 25.7 per cent. M&S has fared little better, falling by 19.8 per cent. Dixons Carphone is 13.5 per cent lower on the year, AB Foods has fallen 11.7 per cent and at the luxury end Burberry is 10.2 per cent down. In fact the stand-out performer has been Halfords, which has seen its share price rise by 11 per cent.

It is no secret that the big three food retailers – Sainsbury, Tesco and William Morrison - have continued to struggle in the current climate and mostly have drawn back from the tendency to become general retailers and refocus on food retailing. This does appear to be a wider theme: many successful retailers of recent years have been focussed on a specific area of the market such as discounting or have had a very particular target market.

The first few months of the year have not been easy for retailers. Until a strong reversal in April, consumers were proving to be somewhat reluctant to spend and we saw weak retail sales figures for February and March. There appeared to be something of a change in April, however, as referendum uncertainty was shrugged off and retail sales saw strong growth to give an annual growth rate of 4.3 per cent.

It is a somewhat mixed environment for retailers, with the fast approaching referendum, the low level of inflation and a somewhat modest rate of real wage growth. However, consumers have proved to be relatively resilient in years gone by and we can only hope that this will continue to be the case.

:: Cathy Dixon is a director at the Belfast office of Cunningham Coates Stockbrokers, which is a trading name of Smith & Williamson Investment Management (SWIM). This article does not constitute a recommendation to buy or sell investments and the value of any shares may fall as well as rise. Investments carry risk and investors may not receive back the amount invested. The views expressed are those of the author and not necessarily of SWIM.