Will retailers get a boost this Christmas?

Retailers are heading into their traditionally busiest time of the year – but how is the cost-of-living crisis likely to affect them?

Soaring inflation, rising interest rates, and high energy costs have made 2022 a very challenging year for the entire industry. But a better-than-expected festive period could give the share prices of these companies a much-needed boost over the coming months.

Here, we take a look at the sector, and highlight the world’s biggest retailers, as well as suggesting some investment funds to consider if you’re wanting exposure.

Are retail sales going up or down?

Before spotlighting potentially attractive retailers, it’s worth taking a look at how retailers are being affected by the various problems they’ve faced in 2022.

First the good news. Retail sales volumes are estimated to have risen 0.6% in October, according to the latest ONS data. However, Helen Dickinson, chief executive of the British Retail Consortium, pointed out these figures masked a fall in volumes, with inflation inflicting pain on “retailers and consumers” alike.

“Retailers are hoping sales will pick up a little [during] the World Cup and as the festive season approaches, but there is little chance of them catching up with current double-digit inflation,” she said.

What about overseas?

There’s not much in the way of better news overseas. US consumer confidence slipped again in November, according to The Conference Board. According to Lynn Franco, the Board’s senior director of economic indicators, this was most likely prompted by the recent rise in gas prices. “Consumers’ expectations regarding the short-term outlook remained gloomy,” she said.

In the Eurozone, meanwhile, Tomas Dvorak, senior economist at Oxford Economics, believes the traditional boost from Christmas sales will be underwhelming. He predicted a “disappointing period” for retailers due to high inflation, subdued consumer confidence and a worsening labour market persuading households to preserve their savings.

Will 2023 be any better for retailers?

The challenging conditions are likely to remain for some time, according to a report from Economist Intelligence, entitled: ‘Consumer goods and retail outlook 2023’.

“Inflation will push up global retail sales by 5% in US dollar terms during 2023, but lower sales volumes and surging costs will weaker retailers’ profits,” it said.

The report also predicted that online sales growth would slow, although the online share of retail “will edge up” to about 14% of global retail sales. “Inflation-wary consumers will prefer to shop at discount stores, helping these retailers to increase their market shares,” it added.

Who is investing in the retail industry?

So, which global retailers have caught the eye of fund managers? Here, we spotlight some of the major corporate names and the funds in which they appear.

Amazon

Who hasn’t heard of Amazon? The global e-commerce business is officially the world’s largest retailer based on market capitalisation. The business was founded by Jeff Bezos when he started selling books in the mid-1990s. Today, its interests include cloud computing and video streaming.

The company is the fourth largest holding in the Baillie Gifford American fund, with a 5.4% weighting*. The fund, which focuses on the world’s fastest growing companies, has a four-strong management team of Dave Bujnowski, Tom Slater, Gary Robinson and Kirsty Gibson.

Alibaba

The Chinese e-commerce giant was established in 1999 with the mission of enabling smaller businesses to compete more effectively on the global stage. The company has declared the combined annual active number of people using its consumer-facing businesses in China has reached more than one billion.

Alibaba is one of the 10 largest holdings of the T. Rowe Price Asian Opportunities Equity fund that’s managed by Jihong Min*. The fund seeks out high quality businesses that will reliably compound earnings and sustain strong cash flow. Generally, these tend to be established companies with leading market positions.

Costco

The US-based company has an international chain of membership warehouses that are used by small and medium sized businesses, as well as individuals. These outlets, which offer products as diverse as televisions and furniture, can be found across the world, including many in the UK.

Costco is currently the largest holding – with a 2.86% weighting – in the Rathbone Global Opportunities fund that’s managed by James Thomson and Sammy Dow*. This stock picking portfolio invests in a small number of global stocks, with the search focusing on innovative and scalable businesses that are shaking up their respective industries.

Apple

Okay, Apple may not be a pureplay retailer, but we’ve added it to our list as many people will be hoping to unwrap the latest iPhone this Christmas. The US tech giant, which floated on the stock market back in 1980, is the world’s largest company by valuation, with a market capitalisation of $2.29tn**.

The stock is currently the largest holding in the AXA Framlington American Growth fund, with a 7.56% weighting*. Steve Kelly, its manager, has a strong growth bias and looks to invest in companies exhibiting genuine organic growth. Meetings with management are seen as crucial to is approach.

Payment providers

Retailers are increasingly reliant on payment processors to help them achieve their sales goals and for many years these have been the major credit card companies.

Mastercard and Visa have led the way in terms of payment transactions and are expected to continue benefitting from the global switch towards online shopping.

Maneesh Bajaj, manager of the Brown Advisory US Flexible Equity fund, has both companies among his 10 largest holdings*. His fund, which aims to achieve capital growth, looks for attractive or improving businesses that are trading at prices that don’t reflect their favourable fundamentals.

Of course, digital payment providers have become increasingly popular and one of the most instantly recognisable names in this space is PayPal. The platform, which claims to have more than 430 million active accounts in 200+ markets, is held by Dr Ian Mortimer and Matthew Page who run the Guinness Global Innovators fund*.

This portfolio, which was launched eight years ago, focuses on companies that are benefitting from innovations in areas such as technology and communication.

*Source: fund factsheet, 31 October 2022
**Source: companiesmarketcap.com, 7 December 2022

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