News & Views

The changing landscape of retailing and the FTSE 100 30 August 2019

The continuing development of technology in the retail sector is having a detrimental effect on ‘old style’ retailers that have in recent years dominated high streets across the UK. With online sales increasing and the need for customers to shop in stores decreasing, many retailers have been struggling to maintain their costly and outdated operations. After the debacle of BHS; Topshop struggling to pay rent on its stores and Next moving a large part of its business on-line, the latest UK retailer to feel these pressures is Marks and Spencer (M&S).

The business has been faltering over several years which has reflected in its share price underperforming. This has led the company towards the bottom of the FTSE 100; the UK index which is comprised of the 100 largest companies, by market weight, tradeable on the UK stock exchange. This is a big deal for a company like Marks and Spencer, which is a bellwether and major name in the UK retail sector. If the company does drop out of the FTSE 100, it may not lead to any loss of business, but the share price will be affected by its fall out of the index. Any FTSE 100 tracking funds will have to sell the shares to buy the new constituent that will take its place.

Very recently, M&S have detailed plans to close more than 100 stores by 2022 as part of its ‘radical transformation’. This may not come soon enough though for the business, which still needs to focus on improving their online presence.

In comparison, one company that has been growing in the retail space due to their technological advances is Ocado, the global online grocery retailer. The company was recently added to the FTSE 100 in its latest rebalance. Ocado continues to grow as online grocery retailing moves from strength to strength. This is just one example of how technological development is leading to some companies benefiting over others that are slower to implement changes to their business models.

Will M&S be the last retailer to falter under the pressure of technological changes? Definitely not. What is hugely important for investors is that it is not just retailing that is being pressurised by technological change, it’s all industries and sectors. From an investment standpoint, focus must be placed on research to make sure that the right winners are invested into and for the right reasons. Technology companies like Ocado are being listed daily, but very few make it as far as Ocado have. Our regular meetings with fund managers, where we discuss the changing landscape, ensures that the funds we select are actively identifying the new opportunities being presented by technological change.


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