Having seen all the budget changes, the biggest of all is the NIC changes accounting for £25bn out of the so called £40bn government black hole. In itself the 13.8 to 15% may have an impact but that impact is also increased by the reduction in the starting threshold which drops from £9,100 to £5,000. So what are companies going to do to combat this?
Could they
- Reduce headcount by not rehiring when staff leave (the media favourite).
- Employ more part time with wages under the £5k threshold instead of full timers.
- Increase automation and AI in everyday functions.
- Increase online sales.
- Source cheaper products to replace existing stocks.
- Increase prices in general or selectively where their products are regarded at the moment as "cheap", where product prices are low being substantially below the competition and have good or growing market share.
- and probably many more dependent on the business they are in - many of which would impact customer service standards.
For my part I have holdings in several "value" retailers - Shoe Zone (LON:SHOE) ( 2593 staff 323 outlets) ** B&M European Value Retail SA (LON:BME) (41,115 and 741) J D Wetherspoon (LON:JDW) (423,000 and 800) Dunelm (LON:DNLM) (11,500 and 184) who are all large employers. (** shoezone at Sept 2023 outlets but reduced to 297 as at Sept 2024 but unknown staff numbers probably 2400 ish)
All of the above employ many staff in their stores and service is what customers expect along with value pricing so sales volume is key. They also share a disturbing trend in that as the living wage, freight costs and inflation have risen and the budget has drawn nearer their share prices have been falling with 52 week drops as follows-
SHOE -- 46%
BME -- 34%
JDW -- 30%
DNLM -- 12%
Interestingly 2 of the 4 are expanding their store estate (BME and DNLM) whilst JDW and SHOE have reduced their store count over the past year, probably exiting unprofitable locations/stores.
Are they still also offering some growth in whatever form you choose be it store expansion and revenue, PBT or eps growth, or I would argue one of the most important of all ie margin expansion, operational gearing and increased return on capital
Certainly all are…
"value for whom" ...kudos for the proper grammar.
I think you've summed up well the challenges and possible solutions that exist in this sector. For sure, the NIC changes are yet another headwind for retailers and I imagine we may well see more profit warnings.
Are the drops in share price already factoring that in though? Some of the more beaten up stocks are beginning to look tempting...I'll probably wait for a bit more clarity on what effect the new NIC rates will be having before jumping in.
But this sector is always facing headwinds and the best retailers (e.g. Next (LON:NXT)) just seem to plough on. Of the shares in your list, I hold Dunelm (LON:DNLM) and am surprised that its share price has held up better than most even before their reasonably upbeat update in October . Actually I wonder if it isn't a bit overpriced at the moment, but I'll probably continue to hold through any volatility.
