Is the shopping street dead? These British shares suggest there is still life

The glory days of the British high street feel like they are in the distant past.

In recent years, more and more well-known names have disappeared, with Debenhams, Topshop, Wilko and Ted Baker, among others, seeing their stores close.

The continued shift away from the high street has been driven by a number of factors, with online shopping playing a key role and leading to a new generation of digital retailers becoming the investors’ favourite.

But investment experts say stock pickers shouldn’t just look at online darlings, and some real stalwarts have recovered, while names like Asos and Boohoo struggled.

In decline: more and more high street shops have closed their doors in recent years, but some big names are doing well

It’s no surprise that with Brits stuck at home due to lockdowns, the Covid pandemic has proven to be a major catalyst in the high street’s decline. The forced time at home and the convenience of online shopping convinced even the most avid shoppers on the high street.

But as the pandemic online boom subsided, a number of major UK high street and retail stocks have proven their ability to adapt and capitalize on their unique offering.

While some have fallen by the wayside, others have flourished, showing that there is still life in brick-and-mortar retail.

While the outlook remains robust, not everyone has fully reflected this in share prices, presenting opportunities for bargain-hunting investors.

“Many have sounded the death knell for the UK high street, especially as retail trends shifted to online shopping during the pandemic,” Darius McDermott, managing director of FundCalibre, told This is Money.

‘Yet the high street has held up, indicating continued demand for physical stores.

‘Despite many high street shares having successfully adapted to the developing retail market, valuations remain low. This presents a value opportunity for some UK fund managers as consumer confidence improves.”

One area where the high street continues to do well is where the in-person experience cannot be replicated online.

Brendan Gulston, co-manager of the WS Gresham House UK Multi Cap Income Fund, said: ‘Certain sectors are well insulated and have delivered strong operational performance, such as companies on the right side of structural growth drivers or those with resilient propositions and defensive characteristics.’

Gulston points to Ten Entertainment and Hollywood Bowl, the former of which was acquired by private equity firm Trive Capital Partners in January, while the latter has seen its shares rise more than 32 percent in the past year.

Gulston said: ‘Within structural growth areas, low-ticket experiential leisure is a category winner, taking wallet share from other business models.’

Similarly, the outlook for the food sector remains positive, with bakery chain Greggs up 29 per cent in the last twelve months.

Greggs has gone from strength to strength in recent years, quickly shaking off the pandemic dent in business.

The Newcastle-based group, known for its sausage rolls, saw its turnover reach £960.6m in the first half of 2024, up from £844.0m a year ago.

McDermott said: ‘Greggs has transformed from a local favorite into a national success story, thanks to effective marketing, innovative value for money products and an understanding of changing consumer preferences.’

Supermarkets have also benefited recently after years in the doldrums.

Tesco has reaffirmed its position at the top of the food retail chain, seeing its shares rise 35 percent in the past year. Yet at 360p they are up just 15 per cent over five years and well below their peak in the mid-to-late 2000s, when shares were trading mainly above 500p.

Sainsbury’s shares have lagged Tesco’s recent rise, but it is also making progress. Sainsbury’s has gained 19 percent in the past year, increasing its market share to 15.3 percent, up from 14.8 percent in recent months, at the expense of struggling Asda. Over the past five years, the company’s shares have risen 35 percent.

The real recovery story of late, however, is that of Marks and Spencer. A revived clothing offering that has really gained popularity in recent seasons has been combined with a strong food performance.

M&S announced in May that annual profits were up 41 per cent and Marks & Spencer shares were up 59 per cent in the past year and have quadrupled at 376p in two years, since hitting a low of 94p in October 2022.

A less fashionable stock, but one that benefits from sales to major food retailers, is St. Albans-based Premier Foods. Gulston says it has “delivered strong earnings growth through market-leading brand strength, pricing power, focused growth through innovation and use of consumer trend data and other drivers of operational efficiency.”

Premier Foods is up 57 percent year-on-year and has more than quadrupled in value over the past five years, after starting to recover from some disastrous years prior.

After the spike in the cost of living hit household incomes hard, inflation has eased back to close to the 2 percent target. This does not mean that life has become cheaper, but price increases have decreased and consumers have proven to be more resilient than many thought.

McDermott said: ‘The outlook for the UK consumer is not as pessimistic as some might think. The slowdown in inflation, complemented by strong income growth, is likely to boost financial sentiment among households, which could in turn boost UK retail shares.”

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