Strong retail figures in the USA in the lead up to Christmas may have driven the S&P 500 to its 69-th record high of 2021 yesterday but hedge funds see clouds on the horizon in the UK. Boxing Day retail sales figures indicate a significant drop in footfall for the traditional post-Christmas sales.
The rise of e-commerce has seen the traditional rush to snap up Boxing Day bargains decline steadily in recent years as more consumers opt to avoid the crowds and shop online instead. And the impact of the new Omicron wave of the pandemic was also significant, resulting in 45% fewer customers visiting physical retailers on December 26th compared to 2019. Many large retailers, including Next, M&S and John Lewis, chose not to open at all.
Hedge funds have reportedly taken £800 million worth of short positions against the retail sector in expectation of disappointing fourth-quarter sales figures. Online retailers were among the “Covid winners” but investors think they may also now take a hit if they fail to meet heightened growth expectations.
A combination of supply chain issues and significantly higher transport and labour costs are also expected to hurt online retailers over coming months. The Times newspaper reports that the online electrical goods retailer AO World’s shares are among the most shorted, with 6%, worth £31 million, on loan to traders who expect their value to drop.
The company benefitted from a rush to buy new laptops, tablets and household appliances over the first stages of lockdown. However, earlier this month AO issued a profit warning, blaming supply chain issues.
Other online retailers The Times reports are in the crosshairs of shorters include fast-fashion company Boohoo, whose value has fallen by two thirds since the start of the year. It also recently issued a profit warning and there could be more pain to follow. The American hedge fund Marshall Wallace has also taken a short position on 1.42% of the shares of the company’s fast-fashion rival Boohoo.
Made.com, which listed in June, has also seen its valuation drop 40% on its float price due to supply chain-related problems has 2.11% of its stock on loan to shorters. However, the most heavily shorted UK retailer is currently B&Q and Screwfix-owner Kingfisher. Its value is up 28% for 2021 and 153% since the start of the pandemic thanks to a surge in DIY enthusiasm over lockdown periods. But investors and analysts are sceptical about that enthusiasm lasting. Shorters have taken positions against 4% of Kingfisher’s stock.
THG (The Hut Group) is also a target with Qube Research & Technologies Limited, the quantitative hedge fund spun out of Credit Suisse, holding a short position against almost 0.8% of its issued equity. And London-based AHL Partners has 0.5% of its stock out on loan as it bets on further share price declines.