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Share Watch with Anthony Peart

IT has been a turbulent start to the year for many of the high- street retailers operating in the UK.

IT has been a turbulent start to the year for many of the high- street retailers operating in the UK.

An increase in the headline rate of VAT, rising inflation and the austerity measures which will be implemented by the Government have encouraged consumers to tighten their belts and this has made the trading environ ment difficult for high-street retailers.

There have been a number of profit warnings in the sector, from some well-established names, and the situation may get worse before it gets better.

Music chain HMV and Dixons, the owner of PC World and Currys, have been under the spotlight following the release of disappointing announcements. Looking at HMV first, the business has been suffering for some time due to greater competition from online retailers such as Amazon and Play.

In addition, supermarkets also sell the latest CDs and computer games at competitive prices.

Despite a number of new initiatives, including a venture into live music, the company’s fortunes have not improved. There has also been concern with regard to the company’s financing arrangements and negotiations are ongoing.

The structural shift away from high-street entertainment retailing to digital media has not been lost on HMV and the company has been enhancing its online offering.

Looking forward, the business appears to have an uphill struggle ahead to regain its previous market position.

Various strategic options may be considered, including a review of HMV Canada and the Waterstones book division.

Like HMV, electronics business Dixons has been struggling due to the fragile customer environment in the UK.

In late March, the business released a profit warning to the market and noted that there was considerable pressure on household budgets and this trend is unlikely to change in the short term.

The group accepts that the electrical market will remain challenging and in response has announced a four-step action plan.

The changes will include a focus on the best store formats, identification of the best stores to reform, targeted reduction of costs, a move towards greater cash generation and also a review of the Spanish business.

Dixons’ international business is in much better shape with the Nordic division performing strongly and Unieuro in Italy showing an improvement.

On a brighter note, retail giant Marks & Spencer released a trading update to the market late last week.

Many investors were waiting to see what the news would be as Marks & Spencer is sometimes considered a barometer as to the health of the UK consumer.

The announcement was broadly positive and stated that progress has been made in clothing and also the food division. It was also noted that market share has been taken from competitors.

Looking forward, careful consideration will have to be taken to successfully navigate the obstacles which lie ahead as the trading environment is likely to remain challenging for the UK retail sector.

:: Anthony Peart, Brewin Dolphin - Anthony.Peart@Brewin.co.uk

 

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