The Investment Column: Picking up windfalls on the high street

With most retailers having reported their Christmas trading statements - Marks & Spencer and Burton, which report next week, are the notable exceptions - the high street book on 1996 is gradually closing. Though there were clearly exceptions, it was generally a good year for retailers with Dixons even pinpointing the start of the recovery to a specific week in the spring. This was when the Tessa money started to flow and tax cuts from the previous Budget came into effect.

As the chart shows, it was around that time that the retail chain store sector started to outperform the rest of the market. The sector continued its outperformance until last autumn when it started to decline. The reason then was fears that interest rates had bottomed out and that increases were on the horizon.

Investors will now be focusing on the prospects for the sector in 1997 and which stocks will prove the pick of the crop.

Most analysts are saying that 1997 will prove another good year for retailers thanks to rising consumer spending and the added factor of building society windfalls. Set against this is the prospect of rising interest rates which could dampen the celebrations considerably.

Sectors that should reap the most handsome rewards from 1997's windfall gains are likely to be the same ones which came top of the pile last year: DIY retailers, electricals and furnishings.

These will be boosted not just by consumers' propensity to buy big- ticket items after their building society windfalls but also the improvements in the housing market.

On that basis Dixons looks good value as the dominant player in electrical retailing. It should also benefit from the March launch of the new Nintendo machine, which is set to become the "must have" computer hardware of the year.

In furniture MFI has already performed strongly but could enjoy a further rerating in 1997. Other stocks with exposure to the housing market should also benefit. That means Kingfisher, which owns B&Q as well as Comet. Items such as carpets and beds should also do well, though shares in some retailers in this market, such as Carpetright, are already expensive.

But as the stock market typically looks around 18 months ahead, investors need to be aware of the trends not just for 1997 but for 1998 as well. That year is likely to prove much tougher for retailers as the building society windfalls fade away. And even if more societies do take the flotation route, the largest players such as Halifax and Woolwich will have been and gone. Add to this the prospect of yet higher interest rates.

All this could mean a switch to more defensive stocks at some stage this year. Top of the list here is Marks & Spencer, the Steady Eddie of UK retailing. A further move into mail order is expected following its housewares catalogue and this could prove a promising area.

Another candidate is Burton, where John Hoerner has overseen a dramatic improvement in fortunes. Though the Debenhams group has been the star performer in recent years, the long tail of fashion stores such as Burton, Top Man and Dorothy Perkins still has considerable room for improvement. It too has made a concerted move into mail order.

Another sector that could enjoy much better fortunes in 1997 than it did last year is food retailing because of its defensive characteristics. Forecasts point to real growth in year-on-year income, an expansion in like-for-like sales income and a recovery in petrol margins.

Nick Bubb of brokers MeesPierson has chosen Somerfield as his share of the year and analysts are predicting good things from other supermarket groups. We will learn more from the supermarkets next week with results from Budgens and Somerfield and trading statements from Tesco and Sainsbury.

Life and Style
food + drink
Life and Style
Shoppers in Covent Garden, London, celebrate after they were the first to buy the iPhone 6, released yesterday
Liam Payne has attacked the media for reporting his tweet of support to Willie Robertson and the subsequent backlash from fans
peopleBut One Direction star insists he is not homophobic
Life and Style
healthFor Pure-O OCD sufferers this is a reality they live in
Arts and Entertainment
A bit rich: Maggie Smith in Downton Abbey
tvSeries 5 opening episode attracts lowest ratings since drama began
Arts and Entertainment
Ben Affleck stars as prime suspect Nick Dunne in the film adaptation of Gone Girl
filmBen Affleck and Rosamund Pike excel in David Fincher's film, says Geoffrey Macnab
Life and Style
ebooksAn unforgettable anthology of contemporary reportage
Warner Bros released a mock-up of what the new Central Perk will look like
Arts and Entertainment
Lena Dunham
booksLena Dunham's memoirs - written at the age of 28 - are honest to the point of making you squirm
Arts and Entertainment
Jake Quickenden sings his heart out in his second audition
tvX Factor: How did the Jakes - and Charlie Martinez - fare?
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

Quantitative Risk Manager

Up to £80000: Saxton Leigh: My client, a large commodities broker, is looking ...

COO / Chief Operating Officer

£80 - 100k + Bonus: Guru Careers: A COO / Chief Operating Officer is needed to...

Senior BA - Motor and Home Insurance

£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

Market Risk & Control Manager

Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...

Day In a Page

A roller-coaster tale from the 'voice of a generation'

Not That Kind of Girl:

A roller-coaster tale from 'voice of a generation' Lena Dunham
London is not bedlam or a cradle of vice. In fact it, as much as anywhere, deserves independence

London is not bedlam or a cradle of vice

In fact it, as much as anywhere, deserves independence
Vivienne Westwood 'didn’t want' relationship with Malcolm McLaren

Vivienne Westwood 'didn’t want' relationship with McLaren

Designer 'felt pressured' into going out with Sex Pistols manager
Jourdan Dunn: Model mother

Model mother

Jordan Dunn became one of the best-paid models in the world
Apple still coolest brand – despite U2 PR disaster

Apple still the coolest brand

Despite PR disaster of free U2 album
Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits
Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments