Sunday, 17 March 2013

What next for the High Street?

The decline of the UK High Street is there for everyone to see. Walk round your local town centre and I'm sure you will notice many more vacant units than 5 or 10 years ago. Prime retail zones like Oxford Street in London buck this trend but in many other regions in the UK it is apparent. 

The High Street has faced two main headwinds. One has been the Credit Crunch; in a nutshell reducing consumer's ability to spend. Second has been the Internet; online shopping from sites such as amazon has boomed in recent years making the High Street redundant. Without expensive property and staff costs these online businesses can drive down price, stealing market share. Recently we have seen Comet and Peacocks close down, highlighting the structural shift occurring in this sector. 

So what does this mean to investors? Well one thing to consider is property investments. Retail property may not be the best investment currently as empty rates are likely to be at highs historically and there could be a lack of rental growth as demand falls. Retail stocks with businesses in structural decline should also be avoided; they may look cheap but they are likely to be 'value traps' and keep getting cheaper! 

Opportunities could arise from retail businesses with a strong online presence. Amazon is a prime example of this type of successful online business model. 

It is not all doom and gloom for the UK High Street and this was highlighted by John Lewis who recently announced strong profit growth as well as staff bonuses of 17% across the whole business. This company has integrated successfully into the online market whilst also benefiting from the success of Waitrose. Strong management has seen this business adapt and change and this dynamic approach has seen it succeed and grow market share when many peers have struggled.

For now let's make the most of the UK High Streets, in 10years time the landscape could look a lot different.

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