Should you shop for a high street investment bargain?
As expectations grow of a tax on retail sales online ...
THE country’s shuttered stores breathed a sigh of relief last week as the Chancellor announced an extension to the furlough scheme as well as a series of grants to help them reopen – and continued discounts on business rates until the end of the tax year.
But Rishi Sunak was silent, in the Budget at least, on the possibility of a mooted online retail tax aimed at levelling the playing field after the pandemic caused bricks and mortar shops to close while online sales soared.
The high street, at present slated to unlock in full on April 12, will look quite different when the open signs are re-hung. In recent months, stalwarts such as Debenhams and Topshop have closed their doors for good, Paperchase has gone through a prepack administration and even dependable John Lewis is rumoured to be considering a programme of store closures.
Since lockdown, we’ve changed the way we shop and what we spend, creating a polarised retail sector. ‘There is a clear trend of losers,’ says Adrian Lowcock, head of personal investing at investment group Willis Owen. ‘Businesses that have been slow to adapt to online shopping and slow to offer a slick digital solution have struggled for years and 2020 accelerated that trend.’
But he also believes the ‘death of the high street’ has been much exaggerated, with opportunities for investors who pick the winners. He adds: ‘There will be a swing back to visiting shops in the short term at least.’
WINNERS AND LOSERS DURING LOCKDOWN
THE relative success of retailers has depended on sector and channel. Jason Hollands, a director of wealth manager Tilney, says: ‘Online businesses have performed well, including the likes of washing machine and fridge vendor AO World, and music equipment firm Gear4Music. Also, Naked Wines as people have drunk at home rather than at the local pub.’
He adds: ‘But it has been pretty brutal for the traditional high street players such as M&S, WHSmith and Card Factory.’
As a result, shares in some of Britain’s retailers look cheaper than others, depending on their digital capacity and whether they sell lockdown-friendly products – wine and lounge-wear rather than high heels and travel accessories.
RETAILERS WITH THE BEST OF BOTH WORLDS
SOME fund managers believe that value is to be found in hybrid retailers with a good online presence but which also give shoppers a reason to return to their bricks and mortar stores.
Abby Glennie is co-manager of investment funds Standard Life UK Smaller Companies and Aberdeen Smaller Companies Income. She rates homeware retailer Dunelm, luxury chocolatier Hotel Chocolat and bike store chain Halfords because they have strong online and in-store businesses.
She says: ‘For many consumers, there needs to be a particular reason to visit a store, now more than ever before. For some Dunelm customers, that might mean being able to touch and feel the soft furnishings, while for Hotel Chocolat customers it might be the pleasurable environment, the smell of chocolate or even the free samples.’
William Meadon, manager of investment trust JP Morgan Claverhouse, talks up Next, another bricks and mortar retailer with a strong online presence. He says: ‘Its online offering is best in class in terms of efficiency and customer interface. In our opinion, its management team is without peer.’
BUILD PROPERTY INTO YOUR PORTFOLIO
AS WELL as investing in retailers, buying into commercial property landlords is a way of getting exposure to changing retail trends.
Property analyst Richard Williams, of investment trust research specialist QuotedData, says logistics property owners are big winners from the way we now shop. These operate ‘big box’ warehouses up and down the country.
He says: ‘The pandemic has resulted in the need for more warehouse space, especially smaller parcel delivery-type hubs located close to towns and cities that make home delivery easier and quicker.’
As for retail property, the picture is patchier. Darius McDermott, managing director at fund research company Chelsea Financial, says shopping centres already had huge challenges which have now been accelerated by the pandemic.
He explains: ‘There may be some alternative value resulting from changes of use. For example, Southside shopping centre in South West London is converting an old Debenhams
store into a go-karting track, high ropes course and food and drink centre. But the high street remains under considerable strain.’
PUT THESE FUNDS IN YOUR SHOPPING BASKET
FOR those who believe that online shopping will continue to be our preferred option for buying, McDermott suggests that investors should look at the likes of Jupiter UK Smaller Companies. Among its largest holdings is BooHoo, the online clothing retailer.
He also likes Marlborough MultiCap Growth, which took a position in Asos in January after it bought parts of Sir Philip Green’s Topshop and Miss Selfridge retail empire for £265million.
QuotedData’s Williams suggests real estate investment trust Urban Logistics, saying that its portfolio of warehouses will benefit from rental growth as a result of huge demand.
He says there are similar logistics issues in Europe where distribution networks are not as mature as in the UK. This, he believes, provides ‘huge’ growth potential for those investing in these distribution properties. Investment trusts set to benefit include European logistics landlords Tritax EuroBox and Aberdeen Standard European Logistics Income.
PROFIT FROM A HIGH STREET RETURN
FOR those who are convinced the ‘old normal’ may return as we enjoy shopping in person again, there are investment opportunities. Dmitri Lipsky, head of fund research at wealth manager Interactive Investor, recommends BMO Commercial Property, a real estate investment trust whose holdings include Central London shopping complex St Christopher’s Place. It has seen its share price plummet in recent years and its shares now stand at a considerable discount to the value of the trust’s assets.
Lipsky argues that the current valuation ‘could be an attractive entry point for income seekers with a long-term view’.
A word of caution from Tilney’s Hollands. He warns investors to be cautious in buying what look like bargain basement retailers. He explains: ‘Should you invest now? I think it is quite risky. On the one hand, with the prospect of shops reopening in the coming months, it is hard to believe that online retailers will continue to hold the same market shares.
‘On the other, traditional retailers are certainly not out of the woods and many are staring at store closure programmes. So I think the outlook is going to be extremely challenging for the foreseeable future.’