Food retailers show no signs of benefiting from the upturn in the economy and growing consumer confi...
Food retailers show no signs of benefiting from the upturn in the economy and growing consumer confidence
While last week's results from Marks & Spencer were some of the most high profile and disappointing, the high street retailer is far from being the only poor performer. In the year to date the FTSE All-Share General Retailers index is down 10.4% and the equivalent Food & Drug Retailers Index is down 6.6%. In comparison, the All-Share is up 9.1
Ree Muwanga, head of UK retail equity at Henderson Investors, says: "Interest rates are relatively low and credit is widely available but retailers' profits have been generally disappointing. Consumers are spending more but the problem for retailers is that this money is not being spent on traditional goods. People are spending more money on evenings out in restaurants, bars and the theatre which are not quoted companies
The group's UK growth portfolio is neutral in both general and food retail sectors. Paramount to Muwanga when selecting retail stocks is whether they have a good franchise. She says: "I hold Dixons which is well positioned in the brown and white goods market. In addition the management is actively attempting to increase the company's market share
Johnson Fry treats general and food retailers as a single peer group and is neutral on the sector although the group is currently biased towards general retailers. When picking general retail stocks, among other things, the group focuses on a company's share of the market
Kenneth Warnock, manager of Johnson Fry UK Growth, says: "We favour stocks which we regard as 'category killers' - companies which either have the largest share of the market or the second largest
"The portfolio has exposure to Dixons, Kingfisher and JJB Sports all of which have between 10%-20% shares in their respective market. In general we never go for companies with market shares below 10
Neither have Muwanga nor Warnock exposure to supposed retail giants Boots and Marks & Spencers
In the case of Marks & Spencer Warnock explains its share price was expensive to the sector and companies such as GAP and Next were now challenging Marks & Spencers quality with value proposition. He adds: "In the late 1980s and early 1990s Marks & Spencers returns on sales were between 10% to 11% now they are between 6%-7%." Boots has not got a defensible franchise, according to Muwanga
She says Wal-Mart's acquisition of Asda has put added pressure on the chemist. In particular she questions whether Boots will be able to compete against Asda's new found pricing power
Hendersons did hold Asda stock before the supermarket's sale to Wal-Mart. Now the investment group has exposure to Tesco, Safeway and William Morrison. Warnock also holds Tesco and regards it as a good defensive company
Although Warnock does not believe the growth in the internet spells the end for high street retailing he says it will have a huge impact on some companies
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