Tesco’s (LSE: TSCO) really not having the best of it right now. After a bubbly start to 2019, signs of declining sales at the business, coming amidst a broader deterioration in the UK retail sector, have put the boot into the business more recently.
Its share price has drifted 7% lower during the past three months alone and I fear that more heavy losses could be seen in the remainder of 2019 and well into 2020. Latest British retail figures from the CBI have fuelled my fears in recent days, the body reporting that total sales this month have dropped at their fastest pace since December 2008.
Food spending falls
Many glass-half-full investors may not be worried by this latest data, though. They could argue that, whilst demand for Tesco’s discretionary products like electricals and toys may come under further pressure, grocery spend tends to be far more stable than that seen in other retail sectors. And as a consequence, this should protect the Footsie firm’s sales from plummeting.
The CBI’s survey shows that this isn’t the case, however. It shows that sale volumes fell across the more resilient grocery sub-sector in August as well. What’s more, this particular study follows recent Kantar Worldpanel research which also shows the broader grocery market contracting in recent months.
And things could get even worse for Tesco in the latter part of 2019 and into next year too should a no-deal Brexit happen in October.
Aside from the prospect of consumers tightening their belts further and heading off to discounters in larger numbers, the supermarket will have to face possible supply shortages in the inevitable event of border disruption. Further slumps in the pound and the subsequent impact on Tesco’s already wafer-thin margins are another problem it may have in the coming months.
Will Lloyds fall too?
The beauty of the FTSE 100 is that it offers investors the chance to buy companies with little or no exposure to the UK economy, and ones which stand to benefit from additional sterling weakness as well. But Lloyds (LSE: LLOY), like Tesco, is another blue-chip in danger of sinking without a trace in 2020.
This particular bank is already suffering from falling revenues and rising bad loans, a double whammy which threatens to get worse as Brexit drags on the domestic economy. And Lloyds faces another danger to profits in the event of a disorderly EU withdrawal — another cut in interest rates.
Brokers at Barclays Capital this week predicted that the Bank of England could slash its benchmark rate by 50 basis points by the middle of 2020 should the UK fall off the Brexit precipice on October 31. Depressed interest rates crushed profitability across the banking sector for years, and so these claims that rates will fall back to the historic lows of 0.25% last seen in 2017 should fill investors with dread.
So avoid Lloyds and Tesco like the plague, I say. You’d be much better off putting your hard-earned investment cash to work elsewhere now and in 2020.
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group and Tesco. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.