Upheaval on the high street

Recent poor results from the retail sector has unnerved investors.

Bad news is coming thick and fast in the retail sector. While there is no sign yet that the recovery in household spending is going into reverse, several poor results or profit warnings have unnerved investors in recent days.

After last week's profit warnings from Tesco and Tate & Lyle, Next said this week that the unusually warm weather in September had dented sales growth. Revenue will only rise 6% year-on-year in the third quarter, rather than 10% as previously flagged.

The news wiped 4% off the shares and hit the share prices of other retailers, notably Marks & Spencer and Debenhams. Meanwhile Sainsbury's reported a third successive quarter of falling sales. Like-for-like sales slid by 2.8% in the three months to the end of September.

What the commentators said

"It is retail 101", said Robert Cole on Breakingviews.com, that "if summer's lease gets an extension, clothes retailers are bound to feel the heat". Shops always stock up on warm clothes in the late summer.

The sun and absence of rain we have had the driest September since 1910 will hardly have prompted people to stock up on winter woollies. So why were investors surprised? "The market reaction reveals a bizarre streak of inefficiency at work."

Investors may have been so rattled because Next is the retailer "most likely to surprise on the upside", as Alex Brummer noted in the Daily Mail. The spotlight has thus fallen on other retailers who have struggled of late.

In M&S's case, you can see why there are jitters. It has reportedly lost another sliver of the women's clothing market and there are fears that the new "all-singing-and-dancing website has thus far failed to capture the imagination."

Sainsbury's results, meanwhile, are a reminder of the supermarkets' "car crash", as Shore Capital's Clive Black puts it. They are facing the growth of internet retail, squeezed consumers, and the emergence of the discounters Aldi and Lidl.

"Sainsbury's is a cleaner proposition" than Tesco or Morrisons, however, said Jonathan Guthrie in the Financial Times. It lacks Tesco's "obsolete hypermarkets", and unlike Morrisons was reasonably quick to establish a presence in two crucial subsectors online shopping and convenience stores. But it is as exposed to the discounters. Sainsbury's is about to embark upon a strategic review. It could be hard work.

Recommended

Stockmarkets shrug off turbulence
Stockmarkets

Stockmarkets shrug off turbulence

Stockmarkets have hit their first bout of turbulence of the year, but most are clinging onto January’s gains.
4 Feb 2021
Greensill, Cameron and the return of Tory sleaze
UK Economy

Greensill, Cameron and the return of Tory sleaze

The collapse of Greensill Capital threw a spotlight on political lobbying when it emerged that former PM David Cameron had been fighting its corner. J…
17 Apr 2021
The MoneyWeek Podcast: how to not lose money to inflation and financial repression
Investment strategy

The MoneyWeek Podcast: how to not lose money to inflation and financial repression

Merryn talks to Peter Spiller of the Capital Gearing Trust about how he navigated the last extraordinary year; what he's buying now; and how he plans …
16 Apr 2021
Recovery Loan Scheme: the latest government aid package for small businesses
Small business

Recovery Loan Scheme: the latest government aid package for small businesses

The Recovery Loan Scheme will help companies weather the pandemic
16 Apr 2021

Most Popular

The bitcoin bubble will burst: here’s how to play it
Bitcoin

The bitcoin bubble will burst: here’s how to play it

The cryptocurrency’s price has soared far beyond its fundamentals, says Matthew Partridge. Here, he looks at how to short bitcoin.
12 Apr 2021
What does the Coinbase listing mean for bitcoin and other cryptocurrencies?
Bitcoin

What does the Coinbase listing mean for bitcoin and other cryptocurrencies?

As the bitcoin price hit new highs, the world's biggest cryptocurrency exchange, Coinbase, listed on the stockmarket. John Stepek looks at what that m…
15 Apr 2021
Properties for sale for around £400,000
Houses for sale

Properties for sale for around £400,000

From a converted church in Banffshire with views towards the Cairngorms National Park, to a period property in the Georgian market town of Beverley, e…
2 Apr 2021