Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

I was chatting to a friend who works at a bike shop the other day and I asked him, gingerly, how business was doing. “We’re flat out” he replied; “I can’t keep up with demand”.

In retrospect, his response shouldn’t have come as a surprise. In a year where many of us have found ourselves with little to do, items which offer some escape have flown off the shelves. Unfortunately, a good year for bikes does not guarantee a good year for the entire retail sector. Diverging fortunes like these have been the story of 2020.

November’s UK retail sales figures remind us once again how tough it’s been for many retailers this year.

Sales fell 3.8% compared to October, drawing the curtains on six consecutive months of growth within the sector. Given that November saw us return to nationwide lockdown, the fall in sales is painful, if not surprising.

What is surprising is that November’s sales remained 2.6% above February’s pre-pandemic level and 2.4% higher than a year before. The sector also coped better with this lockdown than it did April’s, when sales fell 18.1% compared to March.

Partly that’s due to the time of year. Christmas always drives up demand and feedback from retailers suggests consumers started shopping earlier this year. Black Friday will also have played a part, even when UK figures from Barclaycard show sales fell more than 10% compared with last year.

Partly it comes down to how fortunes diverged among different retailers. Where clothing fell 19% and petrol 16.6%, household goods went up 1.6%, mainly in anticipation of Christmas. Supermarkets and food stores rose 3.1%, with anecdotal evidence suggesting that restrictions to the hospitality industry altered consumer habits.

Different companies’ capacity to move online has also heightened divisions within the sector. Lockdown pushed online spending to make up 31.4% of all spending, the highest since May, and an increase of almost 75% since November 2019. Black Friday saw online sales reach their highest on record.

An increasingly select few have established themselves as the go-to online presences, at the expense of the majority who were slower to make the transition. Sales within “non-store” retailers - those with no physical store presence - were 42% higher over November than February. The high street, under fire from behemoths like Amazon long before the pandemic struck, is looking increasingly fragile.

All this been the story of 2020 for the retail sector. Where some have been able to adapt, many have fallen by the wayside. Eight months since the first lockdown, that effect is becoming clearer. At the start of November, Debenhams and Arcadia, which owns brands including Topshop and Miss Selfridge, went into administration, putting a total of 25,000 jobs at risk. A similar fate befell Edinburgh Woollen Mill Group, which includes Peacock and Jaeger, only weeks before. The Chancellor, Rishi Sunak’s, decision to extend the furlough scheme again to the end of April suggests he knows there’s more to come.

While laggards collapse, bigger birds have swept in to acquire what remains. Since July, we’ve seen Boohoo move in on Oasis and Warehouse, Frasers Group on DW Sports and Debenhams, Next on Victoria’s Secret’s UK business, JD Sports on Shoe Palace, and many others.

In general, the rate at which big companies have gotten bigger, and small smaller, has been startling. Turn your gaze across the pond and the contrast is even starker. In 2018, Apple became the first company to be valued at $1 trillion. In 2020, it became the first to be valued at $2 trillion. In net terms, the company has gained around $750 billion this year. Tesla has increased its value six-fold, achieving a market capitalisation roughly equivalent to the value of the other seven most valuable carmakers combined. At the start of 2020, the five biggest firms on the S&P 500 were worth around 17.5% of the index. Now, they account for 22%. Please remember past performance is not a reliable indicator of future returns.

Retail has born its fair share of what has been a merciless year for many businesses. Today’s sales figures are a reminder of that. But they fail to tell the full story of how tough it’s been for some, and how profitable for others.

Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.

Topics covered:

UK; Volatility

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