MR MONEY MAKER: Despite demise of Arcadia and Debenhams, retailing may be damaged but it’s not dead yet
What’s happening?
With the collapse of Arcadia along with the demise of Debenhams, it feels as dramatic as one of those huge icebergs breaking off the Antarctic ice shelf. If the latter is an issue reflecting a climatic change, then these retail businesses are a reflection of an economic equivalent.
A large chunk of the High Street is now likely to vanish – at least in its current form. Mr Green (do I really have to call him Sir?) revels in controversy, from flaunting his wealth to deliberately being abrasive in front of a parliamentary select committee. However, given the way he has run his conglomeration, its demise has frankly come as little surprise to me.
Climate change: A large chunk of the High Street is now likely to vanish – at least in its current form
Why does it matter?
Such dramatic events are important, not just in terms of reflecting changes to the economy, but more importantly because of the personal pain and devastation being caused to both the employees and pension holders. For investors, though, there are some lessons to be learned here.
First, as economies change, so should companies, and both of these beasts perfectly illustrated how quickly an apparently prosperous business can become outdated and unprofitable.
Secondly, business behaviour: these companies have highlighted some poor business practice. Certainly, in the case of Arcadia we saw some huge dividend withdrawals and distinct lack of investment in its future, not least failing to take on board the importance of online shopping. It is of course telling to see the simple difference between the wholly online Boohoo and those ‘bricks and mortar’ based retailers.
What should I do?
Companies that behave badly will in my view eventually come to grief.
Whether it is those who ill-treat their staff, source their products from unacceptable suppliers (pay and conditions), not fund their pension properly or seem to be milking the business as a cash cow – any of that sound vaguely familiar? Follow your nose and your own family expenditure. From Primark to Fever Tree, some brands are telling a strong story which as a consumer we could all understand. The same would apply to our own experience with, say, Marks & Spencer where its combination of bras, baps and banking haven’t really caught our imagination.
Any suggestions?
Picking good retailers during the cracking of icebergs is dangerous. So rather than picking the seller, you could go for a rather unfashionable business such as Reckitt Benckiser, which has a range including Dettol, Durex and Cillit Bang, which are always going to be needed.
If you want retailers, maybe B&M, which describes itself as a variety store chain founded in 1978 and has grown from the north to conquer the south as a discounter in seemingly anything! When markets change they change. That’s intelligent retailing. Or consider AB Foods, which include Patak’s, Twinings and Ryvita in their brands as well as their cheap but flashy crown of Primark.
Justin Urquhart Stewart co-founded fund manager 7IM and is chairman of investment platform Regionally.