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Fashion victims, online winners and the weak pound are key retail themes
Thursday 22 Dec 2016 Author: James Crux

Momentum continued in November according to the latest ONS Retail Sales figures (15 Dec), with strong consumer spending boosted by Black Friday and Cyber Monday in the run-up to Christmas.

Yet with the GfK Consumer Confidence Index falling by five points in November, and inflationary pressures building, Shares is cautious about the retail sector heading into 2017 and urges caution around select names ahead of January’s traditional flurry of trading statements.

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Mild December

Another unusually warm autumn and a mild December may spell trouble for fashion retailers this Christmas. Shares sees scope for profit warnings from high street clothing purveyors triggered by mild temperatures, which are distinctly unhelpful for Marks & Spencer (MKS), Next (NXT), SuperGroup (SGP) and others when seeking to shift winter ranges.

On the flip-side, the relentless growth in online spending continued during November according to the ONS. As demonstrated by its latest sales guidance upgrade (14 Dec), pure-play online fashion retailer (BOO:AIM) and larger peer ASOS (ASC:AIM) look well-placed to deliver strong festive turns.

Festive spark

Another interesting area is electricals, where January’s third quarter update from AO World (AO.) is worth putting in diaries. We think the scene is set for a bumper festive period, as shoppers spend on washing machines, televisions and computers in a final hurrah ahead of likely price hikes next year.

This also augurs well for Dixons Carphone (DC.), whose half year results (14 Dec) to 29 October showed like-for-like sales up 4%.

Chief executive Seb James has braced investors ‘for the possibility of more uncertain times ahead’ due to potential currency impacts and weaker consumer confidence post-Brexit. Nevertheless, Shares remains confident the Carphone Warehouse-to-CurrysPCWorld owner will deliver news of brisk Christmas business when updating the market (24 Jan).

Finally, in the groceries space, where shoppers are yet to feel the pinch of rising inflation, Tesco (TSCO) could emerge as one notable winner. Its value sales grew 1.6% year-on-year and its market share rose to 28.3% in the 12 weeks to 4 December according to Kantar Worldpanel.


Be cautious with regard to the high street fashion purveyors. Cosy up to pure-play online retailers and bet on Tesco to take further market share. (JC)

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