High Street failures & your investments
It’s been a bad week for UK retailers.
Today we hear that Thorntons is planning to close up to 180 stores over the next three years.
Fashion chain Jane Norman has entered administration and the discount department store chain T J Hughes also looks close to failure.
Last week we saw Homeform (owner of the Möben Kitchens, Sharps Bedrooms and Dolphin Bathrooms brands) call in the administrators.
The owner of Habitat has sold the brand and their three London stores to Home Retail Group, with their remaining stores and 700 jobs now with the administrators.
It is fair to say that the High Street is under increasing pressure.
A squeeze on consumer expendable income combined with rising overheads, big debts to service and competition from online retailers makes it difficult for retailers to survive.
What does all of this mean for investors?
Direct equity exposure to retailers is relatively small when we consider the FTSE 100 index of leading UK company shares. This index contains only six retail stocks, and none of the names facing financial difficulty currently.
With the FTSE 100 representing around 81% of the market capitalisation of the entire London Stock Exchange, UK equity investors are unlikely to see their portfolios overly exposed to the retail sector.
Potentially a more direct investment exposure to consider when it comes to these suffering retailers is the UK commercial property sector.
Retailers going bust means rental income stopping suddenly, with the fund being added to the list of creditors for the administrators to handle. Empty retail units are going to be bad news for property values.
The good news for investors in commercial property funds is that they tend to be well diversified. Retail units often make up only one part of their allocation to different types of commercial property, with office and industrial property representing the balance.
Where property funds do have exposure to retailers, they tend to focus on shopping centres with multiple tenants and the more financially robust retailers, often locked into long-term leases with upward-only rent reviews in place.
News of the death of the High Street is naturally bad news for investors in those companies, the staff they employed and landlords. It is unlikely to have a big impact on equity or property investors in well diversified and properly managed portfolios.
Photo credit: Flickr/Andrew Michaels