The much-hyped Black Friday shopping bonanza is upon us for another year, but is the UK retail sector on your investor radar?
One study estimates we are due to spend £9.5 billion on Black Friday and so-called Cyber Monday bargains.
Traditionally this has been a one-day event where shoppers make a dash to bag the best first-come-first-served bargains as soon as a store opens.
Today, it’s more of a month-long affair with retailers appealing to online bargain-hunters as much as those willing to head to the high street – and those getting ahead with their Christmas shopping.
Stephen Peters, Portfolio Manager at Barclays, explains why some UK-based retailers might be cautiously optimistic this year: “Falling interest rates and easing inflation should lead to higher levels of consumer spending, which could mean that retailers such as fashion brands and homewares stores do well.
“It looks like consumer spending could start to rise, though these are not the only factors to consider, of course. Individual financial pressures, such as those we continue to see today, don’t always allow for shopping sprees.”
In another boost to retailers hoping for a good end to 2024, a recent study from Deloitte revealed that UK consumer confidence has risen to its highest level in five years and that signs of consumer spending bouncing back are emerging. Discretionary spending is on the up with the improvement driven by strong growth in holidays, restaurants and clothing.
The report highlighted that the upward trend comes at a time of a strong labour market (albeit higher N.I on employers remains an unknown quantity), falling interest rates, growth in real income for over a year, and inflation now below the Bank of England’s 2% target.
Trends identified in the Deloitte research are also supported by the latest Barclays Consumer Spend research. It revealed that card spending grew 0.7% year-on-year in October, with the recovery of retail being one of the main drivers, alongside strong spend in the entertainment sector. Retail spending grew for the third consecutive month.
Jack Meaning, Chief UK Economist at Barclays, said: “With price pressures continuing to ease and tentative signs that consumer confidence is improving once again, following what appears to have been a post-election dip, we think that the stage is set for real spend growth, as we move through the final quarter of the year, and look ahead to 2025.”
Investors who want to back British retailers all year round (while November kick-starts the festive shopping season, retail therapy is needed by some each and every month) have a variety of options to choose from.
Investing in retailers
The following household names are among those watched by investors wanting to sense check the habits and appetites of UK consumers, both online and on the high street. (Please note, this commentary does not constitute any form of recommendation).
Those currently capturing the attention of fund managers include Next, the fashion, homewares, and beauty products retailer.
Home furnishings giant Dunelm is also a staple holding with many fund managers. Started in 1979 as a market stall in Leicester – it sells over 50,000 product lines including bedding, curtains, cushions, quilts, pillows, furniture and lighting across a mix of trends.
Meanwhile Marks and Spencer, best known for food, clothing and home furnishings remains a high street heavyweight.
Interestingly, WH Smith has a different approach to how it operates these days, in an attempt to revive recent fortunes. It has increasingly moved away from the high street and its main area of growth is now in travel locations such as airports and train stations, where people stock up on essentials before their journey.
If the domestic retail space is one that you want to invest in, you don’t necessarily have to choose individual stocks yourself. You can also invest through funds managed by professionals, who will hand select those companies which they believe offer good shareholder value.
You will find funds on the Barclays Funds List which own some of these retailers, among other holdings.
These include:
- Artemis Income holds Next
- Jupiter UK Mid Cap holds Dunelm
- JO Hambro UK Equity Income owns M&S
AI companies in a supporting role
Artificial intelligence (AI) is helping to transform the way people shop and how they interact with products, creating a more personalised experience for both businesses and customers.
It’s a trend that Stephen Peters is keeping a close eye on: “AI can help retailers in many ways, as the owners of the underlying consumer data which can be used to spot trends and target market gaps. AI can also improve efficiencies and volumes, by helping retailers to better manage stock and the supply chain, which in in turn can lead to more sales.”
One such company operating in this space is RELX – the information and analytics group, which is among the largest companies in the FTSE 100 with a market value of more than £65 billion. It uses surveys, customer dashboards, and feedback mechanisms to understand customer needs and drive improvements.
You will find funds on the Barclays Funds List which own a variety of AI companies, among other holdings.
These include:
- Lindsell Train UK Equity and Artemis Income (currently holders of RELX)
Please remember that the fund manager may choose to sell stocks at any time so if you want exposure to the retailers or AI companies on a more permanent basis, you may want to consider other investments such as Exchange Traded Funds (ETFs).
Investing in a theme like retail and AI can be considered as part of a balanced and diversified investment portfolio.
