Investors go cold on retail

Confidence hit by first drop in sales for three years

RETAIL-industry stocks are about as hot as last season's fashions as consumers watch their wallets and investors shop elsewhere for bargains.

Shares in once-modish consumer, pub and leisure companies have plunged. An investor holding an index-weighted selection of FT-SE 350 general retail stocks would have seen 8 per cent wiped off its value since the start of June. Brewing stocks have dropped 7 per cent and leisure companies 13 per cent. The total index has slipped 1 per cent.

Last month, the Office for National Statistics posted the first annual drop in general retail sales for almost three years as six increases in interest rates took their toll. GfK, a consumer-research company, said consumer sentiment turned negative for the first time since April 1997. More recently, though, positive news from companies such as Debenhams has clouded the picture.

"No one knows which way the economy is going. People feel there's no place to hide," said Fraser Ramzan, an analyst at Lehman Brothers.

PaineWebber International says it expects consumer spending to grow 3.9 per cent this year, down from 4.6 per cent in 1997, slowing to about 2 per cent in 1999. A manufacturing slowdown "is starting to feed through into the rest of the economy", said economist David Brickman.

Retailers tend to feel the first chill of a slowing economy as consumers rein in spending in stores, particularly those selling big-ticket items such as furniture and electrical goods.

Hotels are also sensitive to economic downturns, when business travel declines and people cannot afford holidays. Pubs and restaurants are not immune, even though leisure spending is forecast to command an increasing proportion of household spending.

Companies such as Scottish & Newcastle, Whitbread and Allied Domecq, have funnelled millions of pounds into branded pubs, and some analysts fear that has created too much capacity. And nightclub operators such as First Leisure are finding consumer enthusiasm dwindling.

Analysts are not sure what this all means. "What's hard to define is how much is about the weather and the World Cup and what is wholly economic," said Christopher Page, an analyst at Goldman Sachs. "We may not know that until we get into the autumn."

The trading picture is contradictory. Recent evidence from companies such as Debenhams and Blacks Leisure Group suggests sales recovered in July.

"I don't think it's all doom and gloom, but in the second half of the year there will be shock news because of the strength of last year," said Robert Clark, a director at Corporate Intelligence on Retailing.

Samantha Gleave, an analyst at Sutherlands, said the big companies are in the best position. She recommends Marks and Spencer, Dixons and Great Universal Stores. "Some of the big stores like Marks & Spencer perform better in a recession," she said. "Big companies are able to generate economies of scale."

Iain Wilkie, a partner in the hospitality and leisure division of Ernst & Young, agrees that might is right. "People will move towards quality," he said. "If you have a brand that people understand, it is going to hold up much better." He also expects the health and fitness industry to hold firm: good news for companies such as Stakis, which wants to double its health-club membership by the end of 1999.

Two factors mitigate against pessimism. Lean, 1990s-style companies are better equipped to cope with a downturn than at the turn of the decade. Further, most analysts expect the slowdown to be gentler than last time.

Suggested Topics
Start your day with The Independent, sign up for daily news emails
election 2015The 10 best quotes of the campaign
A caravan being used as a polling station in Ford near Salisbury, during the 2010 election
election 2015The Independent's guide to get you through polling day
David Blunkett joins the Labour candidate for Redcar Anna Turley on a campaigning visit last month
voicesWhat I learnt from my years in government, by the former Home Secretary David Blunkett
ebooksA celebration of British elections
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Editor-in-chief - Financial Services - City, London

£60000 - £70000 per annum + benefits : Ashdown Group: A highly successful, glo...

Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Guru Careers: Management Accountant

£27 - 35k + Bonus + Benefits: Guru Careers: A Management Accountant is needed ...

Guru Careers: Project Manager / Business Analyst

£40-50k + Benefits.: Guru Careers: A Project Manager / Business Analyst is nee...

Day In a Page

General Election 2015: ‘We will not sit down with Nicola Sturgeon’, says Ed Balls

'We will not sit down with Nicola Sturgeon'

In an exclusive interview, Ed Balls says he won't negotiate his first Budget with SNP MPs - even if Labour need their votes to secure its passage
VE Day 70th anniversary: How ordinary Britons celebrated the end of war in Europe

How ordinary Britons celebrated VE Day

Our perception of VE Day usually involves crowds of giddy Britons casting off the shackles of war with gay abandon. The truth was more nuanced
They came in with William Caxton's printing press, but typefaces still matter in the digital age

Typefaces still matter in the digital age

A new typeface once took years to create, now thousands are available at the click of a drop-down menu. So why do most of us still rely on the old classics, asks Meg Carter?
Discovery of 'missing link' between the two main life-forms on Earth could explain evolution of animals, say scientists

'Missing link' between Earth's two life-forms found

New microbial species tells us something about our dark past, say scientists
The Pan Am Experience is a 'flight' back to the 1970s that never takes off - at least, not literally

Pan Am Experience: A 'flight' back to the 70s

Tim Walker checks in and checks out a four-hour journey with a difference
Humans aren't alone in indulging in politics - it's everywhere in the animal world

Humans aren't alone in indulging in politics

Voting, mutual back-scratching, coups and charismatic leaders - it's everywhere in the animal world
Crisp sales are in decline - but this tasty trivia might tempt back the turncoats

Crisp sales are in decline

As a nation we're filling up on popcorn and pitta chips and forsaking their potato-based predecessors
Ronald McDonald the muse? Why Banksy, Ron English and Keith Coventry are lovin' Maccy D's

Ronald McDonald the muse

A new wave of artists is taking inspiration from the fast food chain
13 best picnic blankets

13 best picnic blankets

Dine al fresco without the grass stains and damp bottoms with something from our pick of picnic rugs
Barcelona 3 Bayern Munich 0 player ratings: Lionel Messi scores twice - but does he score highest in our ratings?

Barcelona vs Bayern Munich player ratings

Lionel Messi scores twice - but does he score highest in our ratings?
Martin Guptill: Explosive New Zealand batsman who sets the range for Kiwis' big guns

Explosive batsman who sets the range for Kiwis' big guns

Martin Guptill has smashed early runs for Derbyshire and tells Richard Edwards to expect more from the 'freakish' Brendon McCullum and his buoyant team during their tour of England
General Election 2015: Ed Miliband's unlikely journey from hapless geek to heart-throb

Miliband's unlikely journey from hapless geek to heart-throb

He was meant to be Labour's biggest handicap - but has become almost an asset
General Election 2015: A guide to the smaller parties, from the the National Health Action Party to the Church of the Militant Elvis Party

On the margins

From Militant Elvis to Women's Equality: a guide to the underdogs standing in the election
Amr Darrag: Ex-Muslim Brotherhood minister in exile still believes Egypt's military regime can be replaced with 'moderate' Islamic rule

'This is the battle of young Egypt for the future of our country'

Ex-Muslim Brotherhood minister Amr Darrag still believes the opposition can rid Egypt of its military regime and replace it with 'moderate' Islamic rule, he tells Robert Fisk
Why patients must rely less on doctors: Improving our own health is the 'blockbuster drug of the century'

Why patients must rely less on doctors

Improving our own health is the 'blockbuster drug of the century'