Invest in a Good Retail Deal: Stores Like Next and Waterstones Can Reap Profits

With the country’s shopping streets facing yet another crisis as people work from home rather than commuting to city centers, it’s difficult to predict which specific stores and retail sectors, if any, will fare. good this year.

Still, we’re not about to stop shopping altogether, so select retailers may be more of a bargain from an investment standpoint than anything you might find in January sales.

Jason Hollands, managing director of investment platform BestInvest, says there are good reasons to put retail stocks in your investment basket – despite the latest department store crisis.

He says: “The road ahead may be bumpy, but some retailers who are under the pressure of understaffing, inflation and declining footfall will come out of this difficult time in better shape as they cut costs such as. than underperforming stores. ”

Barclaycard’s data on how we shopped last year confirms the popularity of online retailing, but it also shows green shoots on Main Street. Overall consumer spending grew nearly 6% last year compared to 2019, with notable growth in spending on home, pets and local stores.

Calum Bruce, investment manager at Ediston Property Trust, believes that despite widespread rumors of Main Street’s death, physical stores will still be needed. He says, “While the pandemic has undoubtedly increased e-commerce penetration, the busy parking lots and queues around out-of-town shopping malls show the resilience of brick and mortar stores. mortar.”

Not everyone is so optimistic. Darius McDermott, managing director of fund supermarket Chelsea Financial Services, believes Main Street is in “structural decline”.

He says, “Street retailers cannot compete. Things will only get worse as the cost of online retail deliveries continues to drop and people are pushed back as their local shopping streets are marked with empty stores.

Businesses that can deliver an “omnichannel experience” – allowing people to shop online or in-store and click and collect purchases – will do well in the new buying standard. They include stores such as Next and Waterstones.

William Meadon, director of the JPMorgan Claverhouse investment trust, is a big fan of Next. He says: “The fashion house maintains its reputation as one of the best-run companies in the country. He has exceeded expectations throughout the pandemic and his management team is second to none.

Last week he issued a bullish trade statement with profits for the year through the end of this month expected to reach £ 822million – around 10% more than pre-pandemic profits. He also announced a special dividend of £ 1.60 and forecast sales growth for the year ahead of seven percent.

As inflation continues to rise, companies that run stores that offer “good value” to customers should be doing well.

Although high profile discounters such as Aldi and Lidl are not available to invest as they are private companies, London listed B&M could also benefit buyers tightening their belts and looking for value for money. .

B&M stores are located in retail parks and offer groceries and cleaning products. It also operates 306 convenience stores under the Heron Foods brand. Its shares, currently £ 6.13, are up 15% from a year ago.

Lee Wild, head of equity strategy at investment platform Interactive Investor, likes online fashion brand Asos, a beneficiary of consumers who buy more products online. He adds: “Asos has also been helped by its target market – the 20-year-old and a few fashion enthusiasts – who are happy to embrace new technologies when shopping for clothes. ”

Asos issued a profit warning in October last year after being hit by supply chain issues. Its stocks have also performed dismally over the past year – down more than 50 percent – but Wild says the company’s plans to increase its presence in the United States and across Europe are “Exciting and sane”. He adds: “It could be a turnaround story to follow.”

Funds to consider for a retail therapy session

Not all investors are comfortable buying individual stocks, so it makes sense to buy an investment fund that owns stocks in the retail sector – with a manager who understands the market landscape. retail.

Hollands of BestInvest likes Premier Miton UK Growth, which owns 2.3% of the B&M discounter. The fund has generated overall returns for investors of 75% over the past three years.

Hollands is also a fan of investment funds Slater Growth and Artemis UK Select which own 4% and 3.3% respectively of Tesco.

Supermarkets such as Tesco and Sainsbury’s, according to Hollands, could be targeted in the coming months by foreign buyers in the same way Morrisons was last year, before being acquired (somewhat controversially) by US private equity group Clayton, Dubilier & Rice.

Fidelity Special Values ​​investment trust counts bicycle retailer Halfords among its top 10 holdings. Halfords shares, Hollands says, still look cheap despite rising 32% in the past year.

McDermott of Chelsea suggests looking to GAM Star Continental European Equity and Janus Henderson European Selected Opportunities, both of whom own luxury goods retailer LVMH – owner of brands such as Dior and Louis Vuitton.

He says: “There is always a place for luxury retail. With a growing middle class in many developing countries, as well as middle classes in the developed world having experienced a relatively “good” recession, the demand for luxury brands is not going to go away. “

… or try real estate trusts that own sites

The commercial robustness of business parks during the pandemic will not dissipate in the coming months.

Calum Bruce, director of the Ediston Property investment trust, says these parks represent the future – many of them offering a mix of click-and-collect services and in-person purchases. Most of the recent retail success stories are significant in these outlying centers, including Dunelm, Next and Pets at Home.

But it’s also possible to invest in business parks by buying shares in the real estate trusts that hold the underlying bricks and mortar – Likes of British Land, Ediston and NewRiver.

Richard Williams, analyst at investment research firm QuotedData, says these retail parks “play a key role in the rise of online retail, providing an ideal hub for click-and-collect. and online returns “.