Hedge funds have significantly stepped up bets against Britain’s traditional high street retailers, as the sector struggles with online competition, worries about a stretched consumer and weakening sales and profits.
The risks were on full display on Tuesday when shares in Debenhams slid more than 3 percent to an eight-year low following a weak trading update and a warning on UK sales.
Britain’s upcoming exit from the European Union, an inconclusive general election, and worrying data on consumer spending have muddied the outlook for bricks-and-mortar retailers like Debenhams, Marks & Spencer and Next, whose share prices have fallen this year.
Short-sellers, who borrow shares in a company before selling them into the market, hoping to buy them back at a lower price in the future and pocket the difference, are doubling down.
Of the 10 most-shorted stocks in the UK, five – M&S, Debenhams, Pets At Home and grocers Morrisons and Ocado – are now in the retail sector, according to data from UK regulator the Financial Conduct Authority.
This comes after sofa retailer DFS warned on June 15 that it would miss expectations on profits this year, blaming an uncertain political and economic outlook, and that the lack of demand was “market-wide”.
DFS’s comments sent a stock index tracking Britain’s retailers down 4.1 per cent on 15 June – its biggest one-day fall since Britain voted to leave the European Union in June 2016.
That was followed a day later by Amazon announcing its intention to buy Whole Foods, stoking fears the online giant may push further into retail.
Analysts and investors are braced for further weakness.
“Traditional clothing retailers are an area where I find it much harder to see how the pressure is going to go away,” said Matthew Tillett, a fund manager at Allianz Global Investors.
“I am always asking, ‘is it Amazon-able?’ If the answer to that question is ‘yes’ it is always going to be hard for me to…