The ubiquity of online shopping has been catalyst for significant change across the UK retail sector and customers’ expectations of convenience and speed have never been higher. The advance of social media and technologies, such as artificial intelligence (AI) and virtual reality, means the sector is only going to evolve further. The twin challenges of adaptation and legacy issues (notably property leases and debt) means picking a quality retail stock is no easy task, nor is it a cheap one. But good returns are still possible.
- The advance of Amazon is causing significant upheaval across British retail: the high street is turning digital as consumers prefer to shop online, both for goods and services. It remains to be seen whether measures in Chancellor Philip Hammond’s Autumn Budget will level the playing field.
- Millennial shoppers are shaping the way modern retail works, as well as the way in which retailers position themselves in the market.
- Opportunities still lie in ‘structural growth’ stocks: retailers who have successfully transitioned online and curated a truly multichannel business remain well positioned for future growth. But the power of brand is still crucial, as is an exceptional supply chain to make a successful global retail business. Quality stocks at this end of the market don’t come cheap but higher ratings can, in some cases, suggest these companies are priced for growth.
- Companies are scrambling to get their balance sheets in order ahead of the introduction of new accounting standards next year. Operating lease liabilities pose the biggest challenge, and understanding how a company generates its cash should remain an important part of investors’ analysis. Higher business rates, wage inflation and steeper rents all present an added cost threat – which shows no sign of abating in the face of continued political and economic uncertainty ahead of a potential Brexit deal.
