May 22, 2014 3:02 pm

UK retail: a rising tide

Sales are growing, but some retailers are getting left behind

People in the UK bought 7 per cent more stuff this April than in the previous one. That does not sound exciting. It is. This is a place where people did not buy more of anything for five years, beginning in 2007. April’s growth was the strongest in a decade, and there was growth in every category except for petrol stations. Huzzah.

All the same, investors in some of the biggest UK retailers may think the staff at the Office for National Statistics have been doing their shopping at the pub, just before work. Big food shops are doing wretchedly. Tesco’s UK same-store sales fall 3 per cent in its most recent quarter; Wm Morrison’s were down 7 per cent; J Sainsbury’s were down 4 per cent. Marks and Spencer‘s food sales – aimed at the rich and busy – grew 2 per cent. The rest of the business was flattish, as is turnover at creaky Debenhams.

Look past these ageing franchises and things are a lot better, however. Home-improvement specialist Kingfisher‘s like-for-like sales in the UK and Ireland rose 5 per cent in the most recent quarter. Dunelm pushed its housewares at that rate, too. Trainers and football shirts are moving: UK sales growth at Sports Direct remains in the double digits. Next‘s cheap and cheerful fashion is growing robustly. Asos rips along.

So there is growth. The problem is that the market anticipated the resurgence: in 2012 and 2013, the FTSE general retailing index (almost half of which is Next and Kingfisher) outperformed the wider market by 50 percentage points. Even after this year’s assault on growth stocks, there are few screaming bargains among the retailers.

Only shares in the likes of Tesco and M&S do not reflect the rising tide. The market has concluded that outdated business models will sink these boats regardless. Any sign of buoyancy could make a contrarian bet very profitable.

Email the Lex team in confidence at lex@ft.com

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