’Tis the season to be jolly — but not if you’re a British clothing giant - Retail Stocks

By Rupert Steiner

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A cocktail of changing consumer habits, millennials’ aversion to shopping and the big Brexit clouds gathering over Britain’s high street have retail bosses quaking in their Prada loafers.

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On Monday, online fashion chain ASOS /zigman2/quotes/209092221/delayed UK:ASC -1.36% , usually a bankable star of the retail sector, slashed earnings targets and spooked the market in the run-up to the crucial festive trading period.

It joined a raft of older, more established players in a chorus of Christmas gloom.

Fellow retail star Primark, the low-cost fashion chain owned by conglomerate Associated British Foods /zigman2/quotes/204493701/delayed UK:ABF +0.49% , has said November sales had been subdued, while Mike Ashley, founder of Sports Direct, said turnover last month was “unbelievably bad.”

Such sentiment is at odds with fresh figures from the Office for National Statistics. Data released on Thursday show retail sales volumes in November rose by 1.4% from October. This beat the 0.3% increase forecast by economists, according to Reuters. However, looking at the three months to November, which smooths out monthly volatility, sales were up just 0.4% as compared with the previous period — the smallest increase since April.

Major retail stocks have lost on average 18.35% since the beginning of November, compared with a 5.42% fall by the FTSE All Share.

“When Primark warns and now ASOS you realize how difficult it is,” said Maureen Hinton, global retail research director at GlobalData.

Analysts say these are tough times but also point to niche stocks that could outperform the market.

Hinton said there is a trend toward consumers spending on experiences rather than products, so retailers with expertise in sports and outdoor equipment are likely to perform more strongly, as are convenience chains selling discounted household goods.

While Sports Directsells on value rather than expertise, said Hinton, she predicts sports fashion chain JD Sports is better placed as it sells clothing that is more linked to activities, as well as the latest high-end trainers.

“Fashion sports brands continue to do well because young consumers are willing to pay full price for the latest items from Adidas /zigman2/quotes/203671926/delayed ADDYY +6.07% and Nike /zigman2/quotes/203439053/composite NKE +6.68% ,” she said.

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Shares in JD Sportshave been dragged down to 324.20p by sector gloom and are close to their year low of 319.40p, but on Monday, in a show of confidence, the company’s executive chairman, Peter Cowgill, snapped up 30,000 shares.

Privately owned Mountain Warehouse is also likely to be a strong performer with its focus on outdoor equipment and clothes.

At the budget-end variety chain B&M, which sells cut-price wallpaper, curtains and toys, pulls in consumers with its seasonal products. In the summer it stocks gardening items, Halloween props and outfits over the fall, and festive decorations and gifts for December.

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