Trading and Spread Betting on the UK Retail Sector

Where Can I Trade the Retail Sector?

You can currently spread bet on the ‘general retailers’ sector with: Note that you may be able to speculate on this sector through other brokers.

Why is the Retail Sector So Important to the UK?

The answer is simple and staggering, the UK consumer makes up over 70% of UK GDP.

Good retail sales data will often buoy the UK stock market (and vice-versa).

General Retailers Sector Constituents

As of 19 Dec 2017, the following companies make up the FTSE 350 general retailers sector: To check which firms are currently in the sector see, FTSE 350 general retailers.

For more details on a particular retailer, click on the relevant link above.

For the larger firms we have added the latest broker opinions, real-time charts and prices as well as a guide to trading the individual company shares.

Analysis of the Retail Market

Below, we have a number of articles which talk about the sector.

Readers should note that some of the market conditions will have changed since the analysis was written and, likewise, many of the fundamental arguments will no longer apply.

Nevertheless, because the analysis talks through many of the factors that positively and negatively impact these companies, we feel it’s still useful if you are new to trading this sector.

Retailers Suffer in Q4 2013

Below, an article by Michael Hewson, Chief Market Analyst, CMC Markets, 9-Jan-2014.

Retailers suffer in Q4 despite a broadly positive 2013 in terms of share price performance for the sector.

Looking at quarterly retail sales performance a Q4 slowdown in consumer spending not too much of a surprise.
  • Q1 2013 UK retail sales excluding fuel +0.9%
  • Q2 2013 UK retail sales excluding fuel +1.3%
  • Q3 2013 UK retail sales excluding fuel +1%
  • Q4 2013 UK retail sales excluding fuel currently at -0.3% (but still need to see Q4 numbers, which need to show a rise of 0.4% for December to post a positive final quarter)
When compared to 2012, the annualised retail sales numbers are very good.

However, with energy price rises feeding into cost of living in Q4, and above inflation rail fare and transport cost increases and other cost of living price increases coming in 2014, a Q4 slowdown in consumer spending doesn’t seem all that surprising.

  • Winners: Next, John Lewis, House of Fraser, Asos, Primark
  • Losers: Debenhams, Marks and Spencer
  • Winners: Aldi, Lidl, Waitrose, Co-op, and probably Sainsbury
  • Losers: Tesco, Morrisons

2014 Could Be Hard Work for the Retailers

Below, an article by Michael Hewson, Chief Market Analyst, CMC Markets, 8-Jan-2014.

We’ll no doubt be hearing an awful lot of doom and gloom surrounding retailers Christmas trading updates in the coming days, particularly in light of some of the aggressive discounting that took place in the lead-up to Christmas last month.

Concerns have been raised about the likelihood of poor trading updates from Tesco and Marks and Spencer given that we’ve already had sight of the latest updates from household names like Debenhams, Next, John Lewis, Waitrose and Sainsbury to name but a few and they have been quite a mixed bag.

As with previous Christmas trading periods there are always winners and losers but unlike the previous few years it seems unlikely that we will see any high profile household names going to the wall.

Set against the carnage of previous years, when all is said and done, that has to be a positive.

Changing Retail Landscape

The retail sector has certainly had to adapt to a changing retail landscape, but that is true most years and the retailers that tend to adapt the best tend to perform better.

In the last 12 months the retail sector has been one of the better performers on the UK stock market, and there have been some notable standout gainers and losers.

This has been borne out by UK retail sales over the last 12 months, where we’ve seen growth of around 2% in 2013, in stark contrast to 2012 where we saw a measly 0.1% rise on the year.

In 2012 we saw some remarkable turnaround stories like Debenhams having come back from the brink in 2008, but having hit a plateau of 118p in 2012, the company got a rather stark reality check in 2013 dropping over 20% on the year, on a slowdown in profits growth in an increasingly competitive retail sector.

Stock Market Performance 1 Year
2 Year
FTSE 250 25% 52%
Ocado 400% 370%
ASOS 130% 380%
Ted Baker 93% 235%
Dixons 80% 410%
Next 55% 137%
Associated British Foods 50% 105%
Marks and Spencer 20% 43%
Sainsburys 7.50% 21%
Morrisons -2% -20%
Tesco -3% -16%
Mulberry -15% -30%
Debenhams -25% 30%

It’s certainly been noticeable that food retailers that have focussed on value are continuing to outperform as the success of Aldi and Lidl will testify.

Changing consumer demands and shopping habits are also likely to play a part in the success or failure of retailers as we head into 2014.

The success of “Click and Collect” schemes for retailers like Home Retail (Argos) and John Lewis has certainly helped boost profits at these companies but they need to be, given continued innovation from on-line companies like Amazon who continue to stay one step ahead of high street retailers with their new locker drop-off delivery service, or their Collect+ service.

We’ve even seen Asda flirt with the idea of a grocery “click and collection” service at selected London tube stations as retailers continue to look at new ways to innovate and gain new customers at the expense of their peers.

Retail with a Poor Online Presence
Retail Sector Woes

The direction of travel remains clear for high street retailers in that you must continue to innovate as well as have an on-line presence, a shortcoming that Morrisons appears to be belatedly addressing, with its deal with Ocado earlier this year, but which has seen the company’s share price disappoint this year, with a flat to slightly negative performance.

Ocado’s share price performance has been mind boggling. A valuation of nearly £3bn on a company that has net assets of around £205m and has yet to make a profit.

While Morrisons share price performance has been poor, it hasn’t been alone with Tesco continuing its 2012 underperformance as the bellwether of the UK food sector struggling to stay top of the tree as its market share continues to decline, eroded by the performance of budget retailers Aldi and Lidl, while the performance of Waitrose and Sainsbury, has also helped to dent its market share.

Top 2013 Retail Performer

Sainsbury has been the best performer in 2013, posting yet another positive quarter for sales, the 36th time in a row it has managed to do this after a record Christmas trading period.

The company reported strong sales from its growing number of local or convenience stores, but the shares dropped today after the CFO reported that sales for 2013 could well come in below expectations.

Marks and Spencer

As for Marks and Spencer the company continues to outperform in its food department stealing market share from retail peers like Waitrose, Tesco and Sainsbury, but its Achilles heel continues to be its clothing department as it struggles to get its product range right.

Has the arrival of Belinda Earl as style director helped turn-around the struggling women’s wear department?

If this week’s numbers continue to show weakness, and the pre-Christmas discounting did seem to suggest a problem, then questions will need to be asked as to what a certain CEO is doing to justify his rather large salary, nearly 3 years in to the current turnaround plan.

Surprise Performance of the Retail Sector in 2013

The outperformance in the retail sector has certainly been a surprise in 2013; certainly given the continued squeeze on average incomes, as higher taxes and increased energy price inflation have continued to bite.

It does though beg the question that unless we start to get an increase in wages and lower inflation then it’s probably going to be increasingly difficult for the outperformance seen in the past two years to be sustained over the long term.

Certainly the early evidence of a retail slowdown in some areas at the end of last year with shop prices dropping 0.8% last month due to aggressive discounting would suggest that consumers remain very service oriented and price sensitive, in what is likely to continue to become an increasingly competitive market place for not only food but general retailers as well.

UK Retail Update: Burberry Surges Despite HMV Entering Administration

Below, an article by Simon Denham, Financial Spreads, 15-Jan-2013.

The woe for the UK high street continues as HMV becomes the latest retail sector casualty.

Just after digital camera specialist Jessops went under, it’s now the turn of the CD, DVD and games giant to turn to the administrators.

Unfortunately, HMV is a sad story of a company unable to foresee the winds of change within its industry before it was too late.

The household name was once massive, with almost every customer spending far more than they’d originally planned.

It used to be one of the ultimate browsing venues, but many of those shoppers will probably not even remember the last time they went into an HMV store.

Not even Christmas could save them and it will be a sad day if the store disappears from our high streets altogether.

In contrast, this morning’s bright spot for the UK shares spread betting market is the turnaround in Burberry.

Only a few months ago, slowing Chinese sales saw the retailer issue a profit warning. Whilst the stock market adage is that profit warnings come in threes, it would seem not for Burberry.

The Burberry share price plunged to a low of around £10 in 2012, but the firm has since fought its way back above £14, trading almost 100p higher this morning alone.

Despite slowing sales in Europe, its global footprint and presence in Asia is outweighing the European recession and so the stock is marching back towards the dizzy heights of £16.

Declining Retail Sector?

Below, an article by Michael Hewson, Market Analyst, CMC Markets, 5-Nov-2012.

For investors who spread bet on the retail sector, last month’s UK Q3 GDP figures were a welcome tonic for confidence in UK PLC at a time when the situation in Europe continues to deteriorate and consumer confidence remains weak.

Throughout the last 2-3 years, a lot of news headlines have focussed on the retail sector and the numerous bankruptcies that have seen a number of household names go into administration.

Companies like JJB Sports, HMV, Clinton Cards, Aquascutum and Game Group have become victims of a more price sensitive consumer as a well as a move away from the high street to a more on-line way of doing business.

Even companies like specialist chocolatier, Thorntons, which is down 30% on the year, has had to undergo significant restructuring. This is comes as weaker footfall on the High Street has prompted a reduction in costs through store closures and a sharper focus on their on-line offerings.

Only this month we have seen electrical retailer, Comet, report that it is having problems obtaining credit insurance which have paved the way for a move into administration. Without the insurance it will find it difficult, if not impossible, to stock its stores.

Trading the Retail Sector

For all this negative news flow, it would be easy to surmise that the retail sector is on its knees and one look at an average high street would certainly tell you that there is certainly less choice nowadays.

The truth, in terms of sector performance, is somewhat different if you look at how retail sector has performed this year to date.

So far this year the UK economy, which up until recently had posted three successive quarters of negative growth, bounced back strongly in Q3. The return to growth is largely a result of a sporting summer which included the Olympics, Euro 2012 and the Wimbledon tennis championships.

Given that the UK economy is reliant for over two thirds of its output on the services and consumer sector, the health of the retail sector is extremely important from an economic activity and a recovery point of view.

Looking at the retail sector and its well-publicised problems, it is therefore surprising to see that the sector has outperformed the benchmark FTSE 100 by a significant margin since the beginning of the year. This is in spite of an economy apparently in recession.

Retail Sector: Survival

The reality has been that to survive in the current retail climate retailers have had to be much more nimble and agile. As such, the weaker players have either had to adapt, or find themselves forced out of business, or into root and branch restructuring.

As a result, the ones left behind have seen their shares spread betting markets rise as their more agile business models mop up the residual business left behind by their less nimble competitors.

Retail Sector: Debenhams

Department store, Debenhams, is a good example of how a business on its knees can be turned around.

On the verge of going out of business in 2008 with a debt pile of £900m, the company last month reported a rise in profits of 4.2% with a view to creating another 1,700 jobs. Moreover, it has reduced its debt pile to a more manageable £250m as per its last set of accounts.

Strength of the Retail Sector

Having ended last year at 5,600 a FTSE tracker would have probably generated around a 5% return year to date.

On the other hand, the general retail sector closed last year at around 1,250 and is now above 1,900, a return of over 30%.

Despite a wet and soggy summer, and difficult trading conditions, UK retail sales, this year, excluding fuel, are up 2% on a cumulative month-on-month basis this year.

Based on this, it can be suggested that even though consumers may well be cash strapped, the compulsion to spend is still there, despite the anaemic UK economy.

Outperformers and Underperformers of the Retail Sector

The outperformers this year so far have been:
  • Dixons Retail, up over 110%, (benefitting from Comet’s well documented problems this year)
  • Debenhams, up nearly 90%
  • Sports Direct, up over 60%
On the downside the underperformers have been:
  • French Connection, down 69%
  • HMV, down 40%
  • Mulberry, down over 30% after its recent profits warning
Even more mainstream retailers have had a fairly good year with, Next, up over 40%, Marks and Spencer, up over 20% on a 12 month time frame.

The latter’s strength could be tested however, when they announce their latest results later this week, as new CEO, Marc Bolland, struggles to reposition the retailer against more nimble peers like Primark.

Anther retailer, who appears to be struggling, is Argos owner, Home Retail, who is up over 20% after announcing a restructuring program recently, in an attempt to compete better with on-line retailers like Amazon.

One of the common factors that has determined the success of the outperformers with Debenhams and Next specifically has been the ability to create an on-line offering that customers want to use and find easy to navigate around.

This is largely why Next has outperformed Marks and Spencer, which, despite a fairly good 12 month performance, has shown signs of lagging behind.

With food retailers, it’s been a tale of two supermarkets with Sainsbury’s blazing away from Tesco, showing a 12 month performance of a gain of over 20%, while Tesco’s share price has declined over 15% in the same period.

Christmas Trading Period and the Retail Sector

Whether the retail sector can continue to build on its positive 2012 performance remains to be seen.

For some financial spread betting investors and stores, the lead-up to the Christmas trading period is likely to take on a lot more significance. Those retailers that have underperformed this year will need a good quarter to get them over the finishing line into 2013.

The High Street Should Get Real About a Tough Trading Environment

Below, an article by Simon Denham, Financial Spreads, 15-Jan-2013.

There is finally a sense of spring in the air from shell shocked investors as the feeling continues to permeate through that the worst is possibly over.

Strange as it might sound, from the view point of the stock exchange, this is not as weird a proposition as you might think.

Whilst the actual effects of all of the problems, that have reared their head over the past eight months, have yet to be felt, professional investors spend their time trying to see a year ahead.

It is not much point waiting for absolute confirmation of a change in the financial landscape as by then the stock market would have already rallied/fallen in anticipation of the event and you would be buying/selling at the top/bottom of the cycle.

That having been said there is still quite a bit of ‘faith’ involved in buying just at the moment.

The consumer, that fabled beast whom nobody considers themselves (personally) to be, has yet to seriously pull in his horns.

Yes, times are not so great on the high street but we still have effectively full employment with, aside from some city workers, no real expectation of massive layoffs.

I think that ‘the high street’ should get real about what is really a tough trading environment. It is certainly not the current mild contraction in growth.

If the perception, and actuality, take hold that it is not just future wealth (pensions) that has gone up in smoke over the past ten years but that current earnings might also be for the chop then stores will really get a lesson about what ‘tough trading conditions’ actually means.

There has not been a serious tightening of the purse strings since the early nineties and we may be on the verge of the next.

Yesterday saw both the The Bank of England and ECB hold steady on rates. Whilst I was slightly surprised (short for ‘got it wrong’), if you turn your head sideways and squint through the bottom of a dirty glass you can just about see their point of view.

When the inflationary surge was just one off currency or commodity impulses then holding rates high made no sense but now, we are reliably informed, the effects are beginning to filter through into general inflationary and wage expectations.

A period of hair shirt discomfort may be needed. But I still worry about the UK attempting to put the brakes on just as growth is slowing anyway and as the rest of the globe (aside from the US) continues to roar away.

Mind you, on a personal level, as I am looking to buy a property in the near future so a bit of housing weakness would not be unwelcome.

Also see guide to spread betting on house prices.