Bazaar trade? Short-sellers target UK retailers
Retail stocks in the U.K. have seen a spike in short-selling since the start of the year, as investors bet against some of the biggest names on main street amid the "all-conquering" rise of online shopping, according to financial research firm Markit.
The research firm has spotted that retailers have seen the second-highest jump in short interest for U.K. stocks this year. Short-selling is an investment tactic where a speculator borrows a financial instrument, such as a stock, and sells it in the hope of buying it back later at a lower price, thereby making a profit.
"Of the FTSE 350 retail oriented shares, investors seem most bearish about the food and staples end of the market, with the sector seeing three times the average demand to borrow than the overall index," Simon Colvin, a research analyst at Markit said in a note on Tuesday.
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Two of the U.K.'s top supermarkets have spurred this demand to borrow, according to Colvin. J Sainsbury - the U.K.'s third biggest supermarket in terms of revenue after Tesco and Wal-Mart's Asda - reported slightly higher like-for-like sales for the third quarter on January 8. While the group's chief executive, Justin King, said the Christmas period had been the group's "best Christmas ever", he warned that he expected consumers to "spend cautiously" at the start of 2014.
Shares on J Sainsbury sank 5 percent over the two days following this trading update and have also seen a sharp rise in demand to borrow, according to Markit, with 4.5 percent of the retailer's shares are currently out on loan -- a three-year high for the firm outside of dividends.
Also seeing heavy short interest is WM Morrison, which has seen a resurgence in demand to borrow. Reporting the day after J Sainsbury, the retailer said like-for-like sales excluding fuel dropped 5.6 percent in the six weeks to January 5. Shares plummeted 7.75 percent on the day and are down over 5 percent so far this year.
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"Both firms saw a near 50 percent rise in demand to borrow their shares from the start of the year," Colvin said. "While the demand to borrow Marks & Spencer is still relatively low at 1.1 percent of shares outstanding, Debenhams now sees short interest at a record high demand of 5.2 percent."
But the same research sees some bright spots, notably from U.K. baker Greggs which announced a return to sales growth in its fourth quarter with a strong trading performance in the Christmas period. Shares rose by 4.8 percent after the results and shorts look to have been caught out and have trimmed their demand to borrow.
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Meanwhile, it appears no investor is betting against the rise of internet shopping with Colvin calling the sector "all-conquering".
"Internet retailers have continued to resonate with investors. With a non-food online spending growing by a fifth over the Christmas period and the shares on online grocery shopping tripling over the last year," Colvin said.
The British Retail Consortium have warned more traditional main street shops that they need to invest more in multichannel capabilities, like acquiring an online offering. Online sales surged in December representing almost one in five items sold, according to the retail body, adding that some retailers face the prospect of losing out further.
By CNBC.com's Matt Clinch. Follow him on Twitter @mattclinch81