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Consumer stocks rally on lockdown easing hopes
Hopes of a return to a ‘new normal’ saw consumer-facing stocks stage a significant rally as the UK announced plans for reopening of retail businesses.
This news, combined with an update on another potential vaccine – developed by US firm Novavax – and a plan approved by chancellor Rishi Sunak to bail out strategically important businesses, saw retail, travel and leisure shares surge.
There is speculation that Sunak’s so-called Project Birch could replicate the kind of state support seen in Europe, where Germany has approved a €9bn bail-out of its main airline Lufthansa. Carmaker Jaguar Land Rover is believed to be among those looking for help from the UK Government in the form of a £1bn loan.
Prime minister Boris Johnson announced on 25 May that car showrooms and outdoor markets could reopen from 1 June, the latter news driving double-digit gains for car sellers like Pendragon (PDG), while all non-essential shops can open the shutters from 15 June.
However, there will almost certainly not be a return to business as usual on that date. There are likely to be restrictions on customer numbers in stores and how people move around shops and handle products.
There are also questions about the level of consumer appetite to risk a trip to a shop for non-essentials when they can buy many items online. There may well be ongoing volatility in the shares of retailers, airlines and other travel-related firms until there is confidence that an emergence from containment measures has been achieved without causing a second spike in infections.
In other company-specific retail news, sofa and carpets seller ScS (SCS) has announced a soft reopening of some stores.
Shore Capital analyst Clive Back commented: ‘The whole country has experienced a traumatic period through the coronavirus crisis and within this context the British non-discretionary retail sector has also had to endure a major period of uncertainty, cost and challenge.
‘Sadly, we do not believe that all of the furniture and flooring stores trading in the UK prior to the coronavirus crisis will reopen, something that in a broader context leads us to have concerns about the short-to-medium term prospects for the British consumer economy.
‘Whilst this is so, ScS, with its excellent management, long-standing financial conservatism, strong balance sheet and operational effectiveness, was always towards the top of our survivors’ list for the post-lockdown domestic retail world.’