Retail stocks outshine harsh 2009 climate

The list of the highest risers and steepest fallers comprises a motley crew, but represents in various ways the story of the sector in 2009.

Two of the biggest risers - Clinton Cards and JJB Sports - both had to undertake emergency restructuring during the year and their shares have rocketed subsequently, flattered by the fact that they became little better than penny stocks during 2009’s darkest days.

But recovery was the sector’s underlying story. During the winter of 2008, following Lehman’s fall and Woolworths’ demise, and in the early part of 2009 the City feared a storemageddon as recession bit.

That never happened, despite the collapse of some well known but weak groups. Instead, as it became clear that retailers were adapting to harsh conditions, store groups’ stocks surged. On Tuesday, general retailers were up more than 71% year on year, dwarfing the rise in the FTSE All-Share index.

And although Clinton may top the table of risers, increases in the values of the bigger and more stable companies are just as striking - 151% at Burberry, 76% at M&S and 105% at DSGi being just three examples.

Anticipated recovery and capacity withdrawal in some of the hardest hit markets, such as big ticket, helped surviving home specialists such as Topps Tiles and Carpetright while the popularity among consumers of value groups was evident in Dunelm’s rise.

The popularity of general retailers throws into relief another of the year’s trends - the relative lack of popularity of the grocers, despite all the big players managing to grow.

Declining food inflation, questions - for instance, in the case of Tesco - about sustainability of performance and the scale of opportunity presented by the decimated values of general retailers all contributed to the supermarket groups’ lacklustre showing. The pace of growth - now moderating - of hard discounters such as Aldi also dented sentiment towards the established groups.

So what is the outlook for 2010? Many retailers will have had a decent Christmas, but attention is already shifting to the future.

Election uncertainty, threats to consumer spending such as higher taxes and the continued spectre of unemployment are likely to mean that retail shares could be under pressure as investors take profits, despite stores’ successful Christmas trading.