As many UK retailers report strong fourth quarter sales, Rebecca Jones asks whether the sector is looking like a more promising investment.
Gervais Williams, managing director, Miton Group
The UK economy is enjoying a period of renewed growth at the moment and that is being reflected in retail spend.
There has been a strong increase in car sales recently, which some have ascribed to PPI payouts, while we have more people in the housing market, which is widening the recovery of the UK’s potential, at least in the short term.
The mood is good, there is room for pay rises going forward and people are feeling a little more confident. With this in mind, there is opportunity on the UK high street at the moment and I think the country is better placed than many others.
Is the UK retail sector a buy again?
However, the problem is this two tone picture we are seeing: some retailers did very well in the run up to Christmas, while weaker ones that tend to rely on that final week did not.
The strong are getting stronger but the weak are really suffering. You can see that at the bottom end of the market, with grocers Lidl and Aldi fast grabbing market share from giants such as Tesco and Sainsbury’s.
You have got to be aware of where your customer is, as moods have changed.
Consumers are just not happy buying all their stuff from local supermarkets anymore and so we are seeing fragmentation in customer base.
Successful retailers are responding to that with the right offers and promotions, while the ones that are behind continue to struggle. Click and collect is also a great idea and has really become part of consumer patterns and habits.
The world has changed: it is no longer about expansion and new store openings but about innovation and like-for-like sales. As we have seen with Next, it is possible to take market share on the high street if you get it right.
Caroline Winckles, deputy head of CIO research, UBS Wealth Management
In terms of the listed retail sector, there has been a shift, particularly over Christmas, between companies that have online operations and those who do not. Online shopping is continuing to grow as a percentage of retail sales and the UK has one of the highest penetration rates, hitting a new record over Christmas, with 20% of sales conducted online.
This winter was compounded by the weather, which put people off going to the high street, and many companies went on sale early, seeing erosion in their gross margins. I am always skeptical about the effect the weather really has on people’s desire to shop but it certainly does influence what they buy.
If retailers get caught out having the wrong stock in the wrong season, they will take that as a mark down.
Some companies are better at stock control than others but the trend seems to show that those who can manage their stock quicker will have shorter lead times and so will be the ones that continue to benefit.
Succeeding co-founder Simon Rogerson
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