The COVID-19 pandemic has affected numerous sectors of the economy, including retailers. In the spring months, there were lockdowns in many countries, including the closure of non-essential stores. Even retailers with an Internet presence through e-commerce suffered when the initial shock of the pandemic impacted consumers' minds and wallets.
In the US, stock prices of many retailers have since recovered, along with many other stocks in various industries. For example, year-to-date (YTD) is up more than 38%.
However, the improvement in retail stocks has largely not taken place in the UK. Here's how the shares of several retailers have fallen since the start of the year
boohoo.com (LON 🙂 (OTC :): down 5%;
Burberry (LON 🙂 (OTC :): down 35%;
JD Sports Fashion (LON :): down 15% – not to be confused with Chinese e-commerce giant JD.Com (NASDAQ :);
Next (LON 🙂 (OTC :): Down 11%
One retailer that has had a good year so far is ASOS (LON 🙂 (OTC :). Shares are up more than 35% YTD.
According to the UK Office for National Statistics (ONS):
"In September 2020, retail sales were up 1.5% compared to August; this is the fifth consecutive month of growth, resulting in a 5.5% increase from pre-pandemic levels in February."
The official figures further show that:
“In the three months to September, retail sales were up 17.4% compared to the previous three months; this is the largest quarterly increase ever as sales rebounded from record levels earlier in the year. "
In other words, most retailers saw a significant improvement when the earlier lockdowns ended in the summer during the spring months.
On November 5th, the UK began another lockdown and non-essential stores will be closed. for almost a month. However, we believe that the potential negative impact of the sales hit has already been factored into most retail stocks.
Markets are always forward-looking. As the UK prepares to enter the normally busy shopping season leading up to Christmas and the New Year, many analysts agree that depleted retail stocks deserve a closer look. Now let's see if VET stocks are one of them.
Boohoo
The Manchester-based Index member began trading in 2014 at an opening price of 70 pence. On Nov. 5, Boohoo's stock closed at 285p ($ 68.90 for US stocks).
Thus, shares have created shareholder value over the years.
BOO stock started 2020 around 300p. In mid-March, it was below 160p. To the delight of investors, the shares rose above 400 pence in early July. Then, however, headlines came about working conditions at some of its UK-based suppliers, where workers were reportedly paid less than the legal minimum wage.
Investors did not forgive. In mid-July, shares fell to 210p. Since then, management has commissioned an independent investigation. The company has also said it would take a more proactive role in supply chain management.
In late September, the group announced trading for the six months ending August 31. The retailer saw sales of 45% and an increase of 51% in pre-tax profit, which meant shoppers weren't too concerned about the negative news reports. Management also prepared annual guidance.
We consider corporate governance issues in listed companies to be of paramount importance. However, Boohoo management will likely do their best to avoid such a compromising situation again. That is why we are cautiously optimistic about the stock for the rest of the year. Long-term investors may want to consider buying the dips.
Bottom Line
The pandemic brought about fundamental changes in consumer spending habits. Globally, for example, e-commerce is now experiencing a strong tailwind that may remain with us in the coming quarters.
But even before 2020, many retailers have reorganized their operations, mainly to integrate more online sales. The effect of the online giant Amazon (NASDAQ 🙂 on other retailers, both in the US and worldwide, is hard to deny.
According to the US Census Bureau of the Department of Commerce:
"The estimate of US retail e-commerce sales for the second quarter of 2020 … was $ 211.5 billion, up 31.8 percent (± 1.2%) from the first quarter of 2020 … E-commerce sales in the second quarter of 2020 accounted for 15.1 percent of total revenue. "
In the UK, the ONS reported that in September 2020:
"The share of online sales was 27.5%, compared to 20.1% reported in February."
It is important to note that more than a third of all online retail sales in the US are on Amazon's e-commerce platform.
In other words, online sales as a percentage of all retail sales could continue to increase. both in the US and in the UK.
Investors who would like to consider adding retailers to their portfolios can also consider an exchange-traded fund (ETF) such as the SPDR® S&P Retail ETF (NYSE :), which is over 17% YTD.
