This week’s cover feature looks at some of the shares that have suffered the biggest falls of the past 12 months, asking whether they now offer the potential for major gains should they recover. It will come as little surprise to see that consumer-facing shares, and in particular retailers, are particularly well represented in this group. The expectation has simply been that structural changes to consumer behaviour, not least the shift to internet shopping, will see vast swathes of the high street disappear, and with it several listed companies.
It is certainly true that an increasing proportion of retail activity now takes place online – rising, according to a recent House of Commons briefing paper, from 5 per cent to nearly a fifth of the total over the past decade. In the first eight months of 2018, 28 multiple retailers trading across 2,085 stores shut their doors; 11 per cent of retail properties are now vacant. Amazon – now, after Apple’s recent profit warning, the world’s largest company and often cited as the cause of the UK’s ailing high street – accounts for £4 in every £100 spent in UK retail. One study has suggested UK physical retail will be extinct by 2082.
But as is so often the case, it seems that such fears have been somewhat exaggerated, and the argument oversimplified. Indeed, Amazon is reportedly scouting for physical retail to expand its UKgrocery business, Amazon Go, while one of the big grocery winners this Christmas, Lidl, has no online transactional capability at all (see page 9). Meanwhile, the biggest profit warning of the Christmas period came from a pure-play internet retailer, Asos. Many people, it seems, still like to go shopping, often as a leisure activity.
Yet it is absolutely the case that ecommerce will accelerate the death of some retailers – but they will be poor ones that have locked themselves into unfavourable long-term lease terms, or taken on too much debt to fund overambitious and misguided expansion. They will have failed to adapt, not just their distribution but their products as consumer behaviours and tastes change (vegan sausage roll, anyone?). In short, they will be bad businesses, run in such a way that they would fail whatever sector they happened to be in. In fact, the value of UK retail is bigger than ever – and an indiscriminate sell-off prompted by an excessive focus on the industry’s failures is a great opportunity to buy into the bouncing retail babies that have been thrown out with the bath water.
