Trouble at several UK retailers should not deter investors from backing UK high street brands because companies with strong balance sheets and experienced management will emerge stronger from the current difficulties, according to Richard Buxton, head of UK equities at Schroders.
He said the VAT increase, rising direct taxes, rising prices of food and oil as well as job uncertainty in the public sector are putting a squeeze on discretionary spending. Womenswear retailer Jane Norman and furniture seller Habitat have already entered administration, while HMV and Carpetright, as well as a host of others, are seeking to dramatically cut costs.
“As this is a multi-year process, we face a subdued consumer environment for several years to come,” said Buxton.
However, he believes the current squeeze is the worst it will get. VAT is not going up again, and big tax rises are unlikely, he said. In addition, the quoted corporate sector is in good health, with companies beginning to invest in marketing and expansion, he said.
“If as a UK retailer you have a strong balance sheet, experienced and cautious management and a sustainable franchise, then you will survive the current tough times,” said Buxton. “For the patient investor, there will be great opportunities on the high street in the coming years.”
©2011 funds europe
