Fears for the retail industry because of the Government’s spending review seem to have been assuaged.
General retailers were in demand in a flat market. Their shares moved into positive territory for the year to date for the first time since April - up 1.2% - Arden analyst Nick Bubb pointed out.
Seymour Pierce believes the spending cuts are likely to lead to regional disparities for retailers and that big-ticket categories will remain “subdued” but said: “The fact that there was virtually no
reaction from the stock market appears to indicate than much of the scale of the ‘bad news’ had been discounted.”
But broker Singer warned: “With the sector trading in line with the market and in line with its long-run average, there is downside risk going into 2011.”
Food retail shares were less popular than generalists’, as the leading grocers jockeyed for position ahead of Christmas with eye-catching offers. Morrisons is expected to update next Thursday and brokers’ views diverged.
Oriel says Morrisons is at a crossroads and rates the shares reduce. The broker said: “We prefer those plays with a degree of diversification into areas such as non-food and etailing, and overseas especially.
“Morrison has few of these characteristics and with storm clouds gathering as regional trading trends bite and industry pressures mount, we are cautious.”
Jefferies rates Morrisons a buy, however, and expects a “solid” update.
The broker maintained: “Morrison continues to display the most obvious margin upside within UK grocers (given highest sales densities and lowest underlying margins) and remains at the early stages of exploring new growth areas (convenience, ecommerce).”
The broker was impressed by the store, especially progress in general merchandise and said: “Tesco is moving apace and we can see in a store like Walkden why the retailer holds back from the full roll-out of its Homeplus sub-brand of standalone, largely leasehold retail park stores.
“If Tesco can open a lot more hypermarkets with food as a footfall driver and place ever-increasing authority into non-food then it may prove to be the right path for growth and returns, particularly with the web proposition developing in tow.”
Next week will bring a snapshot of how retail is faring. As well as Morrisons’ statement, reflecting the food sector, there will be updates from fashion giant Next and telecoms and electricals group Carphone Warehouse.