FTSE continues to drift lower, and Boohoo and ASOS pick at the bones of UK retail

“The slow drift of the FTSE 100 continues,” says AJ Bell Investment Director Russ Mould.

“Once again the optimism generated by the vaccine breakthroughs at the end of 2020 is colliding with the reality of inoculating populations and dealing with the new variants of Covid-19.

“The uneven nature of the vaccine rollout always made restrictions on travel a risk and it is one which is rapidly coming to fruition while the more infectious strains of coronavirus also mean caution at the border as well as with loosening lockdown – with all the economic damage that implies.

“So it’s not too surprising another reasonably promising start for the index quickly ebbed away despite a positive session for stocks in Asia, with UK stocks trading a smidge lower after the opening half hour of trading.

“There was some news for investors to cheer as Tesco confirmed plans for a special dividend after the sale of its Thai and Malaysian businesses amounting to nearly £5 billion.

“The supermarket cleared the way for the payout by repaying business rates relief. It will be interesting to see what those businesses who were in receipt of state support and have been unwilling or unable to repay do in terms of dividends going forward.”

Boohoo / ASOS

“The tide has really turned for the world of retail when two business that weren’t even around 25 years ago have either bought or are bidding for some of the sector’s best-known names from days gone by.

“Two decades ago it would have been unfathomable to suggest that one of Britain’s biggest department store names would be sold for peanuts, and that another business with no physical stores would be trying to pick up the bones of Topshop and Miss Selfridge, once key players on the high street. Such is the transformation of retail and the way consumers now buy their goods.

“Boohoo buying Debenhams’ intellectual property and website continues its strategy of picking up well known brands on the cheap. While the target’s woes have been well documented, many people will be surprised to learn that it is still a top 10 retail website in the UK by traffic.

“Boohoo’s management already has a proven model and should be able to slot Debenhams into the company’s way of doing things relatively quickly. It also gives Boohoo a new growth opportunity by taking it into the beauty sector which means it can target the same customer base with two different product streams. Longer term there are also opportunities to cross-sell home and sports products to the same target market.

“It remains to be see if the Blue Cross sale is going to have a future, but one cannot rule it out as many people still associate that phrase with Debenhams and the opportunity to pick up a bargain, which Boohoo could use to its advantage to attract traffic.

“Sadly, this transaction marks the end of Debenhams on the high street and more job losses in the sector. And ASOS buying Topshop would also trigger more job losses as it too is only buying the brand and not shops.

“It is said that the pandemic has accelerated structural changes in many sectors and retail is certainly one of them. Fashion retailers still left with physical stores will have reduced market competition for walk-in sales as Debenhams and Topshop disappear from the high street, but they would still need to have top-notch web services to secure their future.

“Names like H&M and Zara look like they are in a safe place, but there will be many others who won’t be sitting pretty despite more competitors being gobbled up.”

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