After a strong rebound in UK retail sales over the summer as lockdown measures were relaxed, one might conclude that value-led propositions are going to be the strongest part of the sector in the coming months.

Retail sales volumes increased by 3.6% between June and July. This was driven in large part by people spending more money on petrol as the Government said individuals should travel by car rather than public transport. There were also greater clothing sales, perhaps due to pent-up demand and people putting on weight during lockdown.

With the furlough scheme set to finish at the end of October, there is a real chance of greater unemployment which could lead to people losing confidence about job security. Those factors could influence consumer spending habits and potentially result in more people being more careful with what they buy, thus playing to the strengths of companies with value-orientated propositions.

Supermarket Morrisons (MRW) has just announced big price cuts on 400 products as it tries to appeal to families hit by the economic downturn. The company is doing its bit to help the nation in a very difficult time, even if it means lower profit margins.

Price cuts make Morrisons more competitive against Aldi and Lidl, yet the latter two businesses have a greater reputation for having low prices – perhaps also Asda – which means Morrisons still needs to spend a lot of time and effort getting the message across that a lot of its products are now more affordable.

Pubs group Wetherspoon (JDW) is trying to sustain positive momentum as a result of the Government’s money-off eating and drinking incentive in August by slashing prices on food and soft drinks until 11 November. It already has a reputation as being more affordable than many rivals and so this latest discount should play to the company’s strengths and make its pubs even more attractive to people deciding where to go for a meal or drinks.

Other stocks with a value proposition include general merchandise retailer B&M (BME) which is being promoted to the FTSE 100 index on 21 September.

Associated British Foods (ABF) owns the Primark chain which is firmly positioned in the value segment of the market. Trading for the quarter ending 12 September beat expectations for both Primark and its food businesses, with ABF saying the average basket size was initially significantly higher than last year. While this outperformance has reduced in recent weeks it remains higher than a year ago.

Investment bank Morgan Stanley believes one in four furloughed workers are ‘fairly likely’ to lose their jobs when the furlough scheme ends. However, it believes the UK Government will extend the scheme for three reasons.

First, it notes that other EU countries have extended; second, it says the cost of extending shouldn’t be too dramatic; third, an October cliff-edge for the scheme could lead to unemployment rising by several percentage points and significantly delay economic recovery.

Various industry-led bodies are calling for an extension but Boris Johnson has so far refused.

Whether furlough lasts beyond October or not, there still seems a high chance that value-orientated businesses will be attractive to customers going into 2021 given the recessionary backdrop and fragile consumer confidence.

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