Why Do People Queue, and Retail Renaissance?

This blog post was prompted by pictures of people shopping on Oxford Street last night and a tweet from Emilios Shavila showing a queue for Primark at my local shopping centre in Bromley – it looks to be at least 100 yards long. Why does anyone queue to buy non-essential items? Have they not discovered internet shopping?

This is very puzzling as personally I can’t stand to queue for anything and I don’t think I have been in a shop for over 3 months, and very rarely also in the last year. Do people like the social interaction of shopping? Or is it because they can take a friend along and ask them “do I look good in this?”. Perhaps retail shops are not quite heading for extinction just yet, but I certainly would not be investing in them at present unless they had a very strong on-line business element. I feel that shopping habits really are changing and the epidemic has  hastened the move to on-line retail therapy.

The good news is that US retail sales bounced upwards by 18% in May which is a record since 1992 according to the FT and confounded forecasts of a rise of only 8%. That followed a decline of 15% in April. Will the UK follow a similar pattern? Let us hope so because retail spending can have a big impact on the overall economy.

One company that might be affected by High Street footfall is Greggs (GRG) who gave an update on their plans for outlet reopening this morning. Many of their shops are still on High Streets although they have been diversifying into other locations such as motorway service stations and train stations. Greggs has over 2,000 shops altogether and plan to reopen 800 on the 18th June. The rest will reopen in July.

The share price has jumped by 7% at the time of writing, but they do say that they “anticipate that sales may be lower than normal for some time”. Shore Capital reiterated its “Sell” rating on the share because they consider the High Street will take time to adjust to life in a post-coronavirus environment”. They also consider that Greggs will incur significant extra costs as a result of the measures they need to take.

My view (as a shareholder in Greggs) is that I still find it impossible to judge the likely profits (or losses) at Greggs in the short term despite quite a lot of detail in today’s announcement. It’s really a bet at present whether you see it as a valuable property in the long term or not while ignoring the short-term pain. That’s not the kind of investment bet I like to take so I will simply wait until the picture becomes clearer. Regrettably the same logic applies to many other companies at present.

On a personal note, one organisation that has solved the queuing problem is the NHS. Apart from converting my hospital appointments to telephone consultations, the latest manifestation was a new “drive-thru” blood testing service. You get a timed appointment so I drove up on the dot and immediately had it taken through the car window. No need to even get out of the vehicle. Absolutely brilliant. But I am not sure that will be quite so practical in mid-winter.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Amati AIM VCT AGM and Retailers

Amati AIM VCT is one of those peculiar beasts – a Venture Capital Trust. Yesterday I attended their annual general meeting and here are some general comments on the company and the meeting:

Amati AIM VCT (AMAT) is the result a merger of the two Amati VCTs. They had very similar portfolios so this made a lot of sense, and the result is a large VCT with total assets of £147 million. This figure was also boosted by excellent performance last year – a total return of 45.2% on VCT2 for example. That of course was helped by a surprising good performance from AIM companies in general last year, but the Numis AIM index was only up 29%.

How was the performance achieved? By selective stock picking primarily, and by holding on to the winners. So the top ten holdings are now: Accesso Technology, Frontier Developments, Keywords Studios, Quixant, Learning Technologies, Ideagen, AB Dynamics, GB Group, Tristel and the TB Amati UK Smaller Companies Fund. The fact that I hold 5 of those companies directly tells me I should keep an eye on what the VCT is investing in.

Note that I learned to take a jaundiced view of AIM VCTs who traditionally did worse than private equity (i.e. generalist) VCTs due to being suckered into investing in dubious IPOs in what was historically a poor-performing AIM market. But there are always exceptions and perhaps this shows that AIM is improving and AIM fund managers are learning to be more discriminating.

There were presentations from fund managers Anna Wilson (new to the company) and founder Dr Paul Jourdan. The latter gave a somewhat “spaced out” presentation as if he had not spent much time preparing it. It included coverage of a chess match between two software programmes, indicating how clever they had become. Perhaps Paul is worried about being replaced by a computer. But I think the main message we were meant to receive was that the world is rapidly changing with disruptive new technology such as AI.

Anna Wilson covered the worst and best portfolio performers and some of the new investments. The latter include i-Nexus Global (INX: software to help companies to implement strategies), Water Intelligence (WATR: leak detection and remediation), AppScatter (APPS: app management platform) and Fusion Antibodies (FAB: antibody based therapeutics for cancer treatment).

There were also presentations from investee companies Loop-Up (LOOP) and FairFX (FFX) both of which I hold directly. In the latter case, and as the CEO said in his presentation, they should probably change the name as it does not just do foreign exchange provision which is now a crowded market. That was particularly so after the announcement in the morning about a new service to provide business banking to SMEs. By using their new e-money issuing licence they can act like a bank in almost all regards except that they cannot lend client funds out to others. But that just makes them safer.

As I hold both Loop-Up and FairFX directly I did not learn a great deal more but they were interesting nonetheless. It’s always good to be reminded why one bought a stock in the first place.

As Paul Jourdan indicated there are rapid changes in some markets and retailing is certainly one of them. There has been wide media coverage of the fact that even John Lewis, that favorite destination for middle-class shoppers along with its Waitrose stores, is now not making a profit. Here’s a good quotation from Sir Charlie Mayfield, John Lewis Chairman: “It is widely acknowledged that the retail sector is going through a period of generational change and every retailer’s response will be different. For the partnership, the focus is on differentiation – not scale”.

This is undoubtedly true. Competing with other supermarkets with a general “stack them high, sell them cheap” approach certainly makes no sense. It seems John Lewis is having some success with clothes by using “personal style advisors” (rebranded shop assistants).

Clearly the future is internet shopping for many products, perhaps with some “destination” warehouses for viewing and collecting goods. There are some categories of products where viewing the merchandise, particularly on big ticket items or where one cannot simply return them, may still be essential. Those where advice is required might also require a personal touch but some of that can be done remotely. Where the damage will be mainly done is to high street outlets and shopping malls for which I can see no good purpose. Perhaps if they can turn themselves into entertainment and drinking/eating venues they can survive but it’s clearly going to be a lot tougher for such venues and the smaller retail chains that rely on them. Department stores will likely suffer as they already have so investing in companies such as Debenhams is surely questionable unless they become much more internet focused with the shops changing in function.

The high streets are already changing. Banks going, clothes shops closing and more restaurants, cafes, fast food outlets and charity shops if my local high street is anything to go by. Do I regret the changes? Perhaps but I also know it’s not wise to piss against the economic and technological winds. For investors the message is that with such rapidly changing markets, one has to keep an eye on evolving trends and how company management is responding, or not, ever more closely.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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