Marks & Spencer exemplifies the situation for many UK retailers in current market conditions. Hum...
Marks & Spencer exemplifies the situation for many UK retailers in current market conditions.
Humphrey van der Klugt, UK fund manager at Schroders, says that for the year to 12 December, the ubiquitous high-street stalwart's share price has increased by 93%, outperforming the FTSE All-Share by 126%.
The position for the sector as a whole is also positive: general retailers are up 15.5%, outperforming the All-Share by 37%.
Indicators show the reasons for the increase in share prices. The British Retail Consortium published figures show sales up 5.8% year on year to the end of November and 6.0% for the same figures to October.
Van der Klugt says that the state of the wider economy is providing a sound base from which consumers are happy to keep spending.
He says: 'Wages are increasing as a percentage of GDP. The position for consumers here contrasts with the position in the US where spending seems to be more restrained, partly because US consumers borrowed more heavily when the economy was in better shape.'
Consumers are also set to benefit next year when there is a bounce in the economy, says van der Klugt. 'We are trying to get more cyclicality in the Schroder UK fund to benefit from the pick-up in demand that we expect next year and retailers are a good way of doing this,' he adds.
Rupert Trotter, pan-European consumer goods analyst at RSA Investments, agrees with this analysis.
He says: 'Looking forward, retailers depend on the sustainability of consumer sentiment and it is currently looking resilient. Interest rates are low and the cost of consumer credit is falling.'
Marks & Spencer is one such company to have benefited from a relatively positive economic environment, but van der Klugt says that the good news has been already discounted in the price.
Trotter also sees the stock as fully priced and says that analysts will be keener on the stock when footfall turns into purchases.
Stocks that Trotter favours include Dixons and Kingfisher, although he says that the latter is somewhat held back by its European exposure.
He says: 'French companies like the electrical goods outlet chain Darty, which it owns, and Castorama where it has a 55% stake are not seeing the same resilience in consumer behaviour as English retailers like Comet and Dixons.'
Both van der Klugt and Trotter see the potential for problems arising if unemployment continues to rise however. Another factor causing some concern for retailers has been the fall-off in tourism. Trotter says that this has been a particular problem for London, where he says footfall related to tourism could have accounted for up to a 20% drop in visitors to some top stores.
He says that luxury goods sales have been hit by the drop off in Japanese tourists who have been hit by the fall in the value of the yen.
One London store that Trotter favours is Selfridges. He says the redevelopment of the Oxford Street shop and improvements to the hotel offer good reasons to invest.
Strong consumer sentiment continues.
Low interest rates and relaxed fiscal policy.
Wages increasing as percentage of GDP.
Despite improved risk appetite
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