Two years on from the EU Referendum, and the UK’s decision to leave the European Union remains as controversial as ever. You don’t even have to tune into the weekly slanging matches on political news shows to hear both sides of the story argued with equal passion.
Just consider the torrid time being had on the UK High Street. Retailers are closing doors and going into administration at a rate that’s probably unprecedented outside of a recession.
Even the betting shops that flooded into many empty properties in the last downturn could soon face tougher times. With new legislation set to curb the income from their lucrative fixed-odds betting terminals, I wouldn’t be surprised to see more vacancies appear as those chains retrench too.
Many who fear for the economic impact of Brexit pin the woes of retailers on the vote to leave, whether because of cost inflation caused by the weaker pound, lower wage growth on the back of a slower economy, or simply consumers generally growing more fearful due to all the uncertainty.
“Nonsense,” say Brexiteers in response – the High Street has been challenged for decades, first by out-of-town shopping centres, and more recently by the massive pressures exerted by Amazon and other online retailers as consumers fundamentally change their shopping habit and anyone not thinking ahead gets caught out.
Who’s right? I suspect, like the wider debate, there’s a bit of truth in both, but I don’t propose to get into that today.
What is more interesting from an investing perspective is that not all companies are suffering equally in UK retail’s annus horribilis.
Here are five firms bucking the trend – all of which you can invest in if you fancy their long-term chances.
B&M European Value
B&M European Value (LSE: BME) just reported great results, with pre-tax profits rising nearly 24% to £226m. Management explicitly credited the “current difficult economic environment” as partly responsible for the firm’s success. It focuses on selling good value merchandise (and increasingly food, following a recent acquisition) to cash-strapped consumers. To date, it has deliberately avoided selling goods online, believing it would hurt its margins. Instead, it concentrates on opening and running stores wherever its customers are, adding 47 new B&M outlets in the past financial year to bring the total to 567. Bricks-and-mortar ain’t dead here!
The major High Street banks keep closing branches and talking up their online offerings, but Metro Bank (LSE: MTRO) is still opening new physical stores in the centre of cities. It looks to be working. In April, Metro announced its total lending had surpassed the £10 billion mark, thanks to year-on-year growth of 69%, while total deposits also grew in the first quarter to £12.7bn. Its customers seem to value having local stores on the High Street, and the bank plans to open another dozen in 2018.
Like B&M, Shoe Zone (LSE: SHOE) thrives in the value end of the market. Revenues continued to climb in the first six months of its financial year – not by a lot, but better than the soggy performance of many High Street rivals. The footwear seller has been making a big fuss about its new out-of-town Big Box outlets, but the bulk of its estate of around 500 stores is mostly in traditional shopping destinations. Crucially, Shoe Zone has closed around 5% of its stores since it floated in 2014, and it says this phase of weeding out the loss-makers is now complete. With no debt, I think Shoe Zone should survive the High Street meltdown.
Okay, so affordable luxury clothing brand Ted Baker (LSE: TED) is no longer a mostly British play – only 195 of its 532 stores are located in Britain, thanks to many years of successfully exporting its brand abroad. However, Ted still seems to be as popular as ever at home, and while recent trading has been a little more difficult, it pins that on the terrible weather. Globally, retail sales jumped over 10% in the past year, and while Ted’s online sales are growing fast, too, management believes that “stores remain key to the success of the e-commerce business” as they act as a showcase to customers as well as enabling click-and-collect. Investors don’t seem convinced – the share price has slipped lately – but I believe this fancy brand remains well placed for the long term.
The past few years were torrid for Tesco (LSE: TSCO), with over-expansion and the incursion of discounters Aldi and Lidl provoking a supermarket price war that crushed its margins (and that’s not to venture into the murky financial shenanigans). But Tesco now seems to be getting back to doing what it used to do best – grow. Its traditional superstores grew like-for-like sales 1.9% last year and its convenience stores put on a 2.7% spurt. Yes, its online business is advancing at an even faster clip at over 5%, but that’s from a much lower base. For the foreseeable future, I think Tesco’s Express stores will remain a feature of our High Street, whatever else comes and goes around them.
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Owain owns shares in Amazon and Ted Baker. The Motley Fool has recommended shares in Ted Baker.