Black Friday fears for retail earnings and Ocado strikes major Japanese deal

“UK markets took another step back with the FTSE 100 down 0.4% to 7,385 and the FTSE 250 slipped 0.3% to 20,953.

“These movements pale in comparison to Asian shares which slide on weak Japanese manufacturing data and heightened concerns about US/China trade talks.

“Hong Kong’s Hang Seng index dropped 2% with the healthcare sector experiencing the biggest decline,” says Russ Mould, Investment Director at AJ Bell.

Black Friday / Retailers

“Amid the annual frenzy of promotions offered by high street shops and online retailers, investors don’t seem to be that excited about Black Friday if you look at the behaviour of retail stocks on Friday.

“None of the retailers on the stock market are racing upwards which may initially suggest to some people that investors don’t believe the event is a game-changer for earnings.

“You need to understand how the stock market works. It is all about pricing in what people think will happen in the future. Everyone already knew the event was happening and so any bullish investors could have already taken positions in advance on stocks they think could benefit rather than simply buying on the day.

“In reality, Black Friday isn’t always the major earner for retailers as some people might think. Yes it can help to drive up revenue, but investors care more about profits. The challenge throughout the year for retailers is to sell as much as possible at full price.

“Black Friday can be used as a way of luring people in to shops or websites with the hope that they buy full price products as well as discounted ones. Whether that happens remains to be seen.

“ASOS is offering up to 70% off everything on its website and BooHoo has gone even further with a promotion for part of the day offering up to 75% off its products. That’s a huge giveaway.

“Consumers hooked on a diet of discounts tend to rebase their expectations for pricing going forward and it can be very hard for retailers to get them to pay higher prices later on. By offering such generous discounts they are creating major problems for the future.”

Retail share price movements 29 November
Marks & Spencer +0.4%
BooHoo +0.2%
Next 0.0%
JD Sports -0.3%
ASOS -0.9%


“Excitement around the Ocado story has long moved on from its position as an online groceries operator in the UK; it’s now mostly about selling its Ocado Smart Platform to international retailers.

“Hence why news of a new ‘mini’ customer fulfilment centre in Bristol yesterday caused barely a ripple but the announcement of an agreement with Japanese retailer Aeon is creating a big splash this morning.

“The agreement with Aeon is timely given the doubts which have recently emerged over its partnership with US supermarket Kroger and signs of emerging competition across the pond in the form of the recently launched Takeoff.

“Ocado remains a marmite stock. Some see the out of the box solution offered by the Ocado Smart Platform, based on proprietary software and algorithms as well as robotic warehouses, as a sufficiently compelling proposition to ignore questions over a multi-billion pound valuation and the company’s failure to yet register a profit. Others question when the multiple agreements Ocado has forged will start making a meaningful contribution to earnings.

“Still, the company will rightly receive plaudits for this latest tie-up, given Aeon is one of Asia’s largest retailers, even if in the short-term the company will incur more costs to implement the service.”

These articles are for information purposes only and are not a personal recommendation or advice.

The daily market update is written by Russ Mould, AJ Bell’s Investment Director and his team. The article highlights the movement in the main index, winners and losers on the day and any macro-economic announcements.