Should we be tapping into the retailer renaissance?

Is it worth investing in retailers? The sector has taken a pummelling in recent times due to the cost-of-living crisis and the damaging effects of the Covid-19 pandemic.

Surging inflation, commodity price increases and global supply chain disruption have made life particularly challenging for businesses across the world. But there are green shoots of optimism with sales on the up and some of the most innovative companies being able to deliver bumper profits.

Here we take a look at some of the most successful retailers in the world and highlight the investment funds giving you access to them.

The backdrop for retailers

Unsurprisingly, Covid-19 was a serious problem for virtually every retailer, particularly those without an online presence.

However, they’re bouncing back. In fact, the top 250 retailers in the world achieved 8.5% year-on-year growth in retail revenue, according to Deloitte’s Global Powers of Retailing 2023 report*.

Further good news came from the British Retail Consortium’s recent figures, which revealed how total UK sales increased 4.1% in August 2023**.

This recovery is not limited to UK PLC, with global retail sales projected to hit $32.8trn by 2026, up from $26.4trn in 2021, according to figures compiled by Statista***.

Against the odds

There are plenty of retailers that have enjoyed an uptick in fortunes – despite soaring inflation having dramatically increased the cost of living.

One such name is FTSE 100 giant B&M European Value Retail, which operates hundreds of cost-conscious stores across the UK and France. The company, which reported 13.5% revenue growth**** in the first quarter of its financial year, has seen its share price rocket over 75% over the past 12 months*****. The discount retailer is already looking to the future, having unveiled plans to buy 51 stores from troubled budget rival Wilko, for up to £13m^.

Global giant

In the world of retailing, no-one can compete with Amazon. The online giant is worth a staggering $1.36trn, making it the fifth largest in the world, according to Companiesmarketcap.com^^. Jeff Bezos, the company’s founder, opened the virtual doors of Amazon’s online store in July 1995, with the company going public less than two years later^^^.

The company’s net sales increased 11% to $134.4bn in the second quarter of 2023^^^^, according to its most recently published results.

The stock is currently one of the largest holdings in Brown Advisory US Flexible Equity^^^^^, which has been run by Maneesh Bajaj since 2017. The fund is supported by a strong team of analysts and has managed to deliver good returns in both up and down markets – making it a strong consideration as a core US equity holding.

Costco

The US-based company operates an international chain of membership warehouses that are used by small and medium sized businesses, as well as individuals. These outlets, which offers products as diverse as televisions and furniture, can be found across the world, including many in the UK.

Costco is currently the third largest holding – with a 2.5% weighting – in the Rathbone Global Opportunities fund, managed by James Thomson^^^^^. This stock picking portfolio invests in a small number of global stocks, with the search focusing on innovative and scalable businesses that are shaking up their respective industries.

This fund is a truly active, unconstrained growth fund run by an experienced manager. We believe his high conviction strategy has proved itself over many years.

Supermarket powerhouse

Tesco has a dominant position among Britain’s supermarkets. The company recently revealed an 8.2% increase in its group retail sales figures for the first quarter*^, with the performance of large stores being particularly strong.

In a statement, chief executive Ken Murphy, noted “encouraging early signs” that inflation was starting to ease. “We are very conscious that many of our customers continue to face significant cost-of-living pressures and we have led the way in cutting prices on everyday essential items,” he added.

The chain is currently a top 10 holding in Jupiter UK Special Situations^^^^^. This fund is managed with a distinct contrarian and value-based approach, giving investors access to a well-diversified portfolio of predominantly larger UK companies.

Other options

Buying retail companies is not the only way to get exposure to this sector. There are several other industries whose fortunes are linked to retailing.

For example, Shopify is a Canadian multinational e-commerce player that enables businesses to easily set up online outlets. In its results for the second quarter of this year, the company announced revenues were up 31% year-over-year**^. Cashflow, meanwhile, was positive for the third consecutive quarter**^.

Shopify is currently the third largest stock in the Baillie Gifford American fund, with a 7.6% share of assets under management^^^^^. This portfolio is run by a team of four co-managers who focus on a small number of US companies that create exceptional returns. The experienced management team has a variety of different backgrounds meaning each manager will look at companies from a different angle.

Of course, retailers can’t make money unless customers pay them – and many will use credit cards to make such purchases. One of the biggest players in this area is Mastercard, a payment process corporation that works across the globe.

The stock is currently held by Matthew Page and Dr Ian Mortimer in their Guinness Global Innovators fund^^^^^, which invests in disruptive businesses that are changing the world. The two managers are highly experienced and have developed a clear and consistent process which has proven to be successful.

*Source: Deloitte, February 2023

**Source: British Retail Consortium, 5 September 2023

***Source: Statista, 29 August 2023

****Source: B&M Q1 Trading Statement, 29 June 2023

*****Source: BME share price, 22 September 2022 to 21 September 2023

^Source: The Guardian, 5 September 2023

^^Source: Companiesmarketcap.com, 22 September 2023

^^^Source: Amazon

^^^^Source: Amazon Second Quarter Results, 3 August 2023

^^^^^Source: fund factsheet, 31 August 2023

*^Source: Tesco Q1 Trading Statement, 16 June 2023

**^Source: Shopify Second-Quarter 2023 Results, 2 August 2023