Stocks that can beat High Street slowdown

INVESTORS have long relied on the British love of shopping to make buying shares in stable, growing, retail companies a safe bet.

But with stores in this country posting their biggest quarterly sales fall for seven years, and fears the US retail slowdown is heading this way, now is a good time to ask what’s happening to the High Street – and how can investors make money from it.

Online sales rose 19.5pc in the 12 months to March, so the obvious answer is that consumers are flocking to internet retailers rather than bricks-and-mortar shops.

Indeed, despite department stores such as House Of Fraser and Debenhams trying to lure shoppers with luxury services such as spas and prosecco bars, 378 retailers have gone into administration since 2013, according to the Centre For Retail Research, which had predicted that just 164 would fail between 2013 and 2018.

Christopher Metcalfe, head of UK equities at Newton Investment Management, said investors should ditch the High Street completely.

He believes a store’s successes often indicate its future failure, with retailers such as HMV, Blockbuster, Borders and BHS struggling or collapsing in recent years.

Metcalfe said: ‘As the internet opens up new avenues of research and purchase, longstanding businesses risk being left on the shelf as it becomes increasingly difficult to sustain competitive advantage.’

But John Stevenson, retail analyst at Peel Hunt, said there was still mileage in the High Street, urging investors to look for ‘structural growth stocks’ – retailers with strong prospects for growth that let them focus less online.

Examples of this include JD Sports, Hotel Chocolat, Ted Baker and Dunelm.

He added: ‘Growth can come from anything from store rollout and international expansion through to online growth. This expansion and clear market position also helps to mitigate the impact of inflation.’

But there is another option – and that’s to bet on changes in consumer behaviour. The UK Cards Association says entertainment purchases account for one in four online card purchases, so one answer for investors could lie in the belief that consumers are spending less on products and more on experiences.

Ali Unwin, manager of the Neptune Global Technology fund, certainly thinks so. He said one way to benefit from the trend was through online travel-focused firms such as Priceline and Expedia.

He also named Accesso Technology Group, an AIM-listed firm providing ticketing and queueing software to theme parks and music venues worldwide, that has returned 21.7pc so far this year.

Unwin said: ‘For millennial consumers in particular, the Instagram selfie atop Machu Picchu has replaced the flashy car as the conveyor of economic and social success.’

Likewise, James Thomson, manager of the Rathbone Global Opportunities fund, said the boom in companies that provide experiences was likely to be helped by the ongoing weakness in the pound, which should encourage so- called staycations in Britain.

He said: ‘There are just too many bricks- and- mortar stores. The shift to online will only accelerate from here.’

But investing in experience providers is not without its risks, according to Colin Morton, manager of the Franklin UK Equity Income fund.

He said while some retailers had diversified successfully into luxury experiences, much of their business was exposed to the weaker mass market.

So High Street stores can still be a good bet. He added: ‘Established retailers have a large market share and significant customer bases they can use to take advantage of the changes, so investors shouldn’t necessarily shy away. We still see opportunities here.’