August 12, 2011 5:58 pm

Riots hit retail shares ‘at worst time’

Four nights of rioting and looting on the streets of English cities have resulted in 48,000 shops, restaurants, pubs and clubs suffering financial losses, according to an analysis by the
Local Data Company – and insurers estimate that the total cost has now reached £200m.

Lost revenues from tourism, if just 1 per cent of visitors cancel a trip to the UK as a result of the riots, will amount to another £520m, figures from the Centre for Retail Research and shopping website
Kelkoo suggest.

More

On this story

IN Savings

While most of the businesses that bore the brunt of the destruction were small independents, news footage has shown listed companies, such as Tesco and JD Sports, hit by multiple cases of looting and arson. But the impact on their share prices – now and in future – remains ­difficult to quantify.

Not only is the retail sector already suffering in a climate of lower economic growth and consumer spending, but UK share prices continue to be driven by broader global debt crises.

“The riots are localised so the markets have not been terribly affected,” said Mike Lenhoff, chief strategist at Brewin Dolphin. “Of course, a lot of the FTSE 100 derives revenue from overseas, so the effect there will be small – but, for the companies involved, it really depends if this shock is temporary or not.”

For some traders, a week of damage and lost trading could prove too much, said Adrian Lowcock of advice firm Bestinvest.

“Secondary retail centres have already been suffering the fall in consumer spending,” he said. “It will take weeks for business to go back to normal and those already on the edge, struggling to meet rental payments, could find this event the final straw.”

For the retail sector, generally, the riots couldn’t have come at a worse time, claimed Tom Stevenson, investment director at Fidelity International. “These sectors are already struggling,” he said. “Events this week will be bad all round for confidence, for consumers and investors.”

But Nick Raynor, investment adviser at The Share Centre, pointed out that the share prices of many companies visibly affected have since rallied – suggesting the riots have been discounted by investors.

JD Sports, the footwear and clothing provider, had 30 of its 350 stores looted this week. Nevertheless, its shares rose 2.81 per cent on Tuesday – as rioting continued but markets bounced – before falling back on Wednesday, and rising again on Thursday. Looking purely at the charts, it would be impossible to tell when the riots took place, pointed out Raynor.

Hammerson, the property developer, saw violence erupt in two of its shopping centres: Croydon and the Bullring in Birmingham. This week, its shares bounced after falling on the back of poor results
last week
.

“If nothing else was happening, then perhaps we would see some effect, but at the moment it’s a side issue,” explained Raynor. “That said, in three months’ time, when the retailers come out with their trading statements, then we might see more of a difference.”

Lowcock forecast that the insurance sector would not suffer too badly – as the damage by rioting has been minor compared with recent natural disasters.

Although the destruction of commercial and residential property was severe in the worst affected areas, it does not exceed the costs incurred after large-scale natural events such as the flooding in 2000. Back then, the total cost to UK industry was estimated at more than £1bn.

One listed company may even benefit from the local clean-up initiatives. Inter­serve, which provides cleaning services for shop fronts, announced that it would be helping several companies – including Boots and Ladbrokes – to make repairs to their damaged outlets. However, it added that the work was unlikely to have any real impact on profits.

Copyright The Financial Times Limited 2014. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.

SHARE THIS QUOTE