On this blog in 2016, we covered a wide range of consumer sector-related topics, ranging from the evolving world of luxury goods to the cheap thrills offered in the value sector, with the scandal of ‘Marmite-gate’ thrown in for good measure.
2016 saw an accelerated rate of change in our sector. As we have discussed previously, consumer adoption of technology, social media for example, is driving major shifts across the industry, changes which are far broader than just the move to online shopping.
Simultaneously, the macroeconomic and socio-political landscape is also evolving significantly, with populist, anti-globalisation sentiment on the rise; just one potential consequence could be broad-reaching changes to the tax environment for both US and multinational companies.
In this hypercompetitive environment, where disruption is rife and the political backdrop uncertain, we believe a global and highly selective approach to stock-picking is vital.
There are two key themes which help us identify what we expect to be major trends in 2017:
Abundance: A range of factors that bring new modes of competition and price transparency are contributing to an abundance of goods and services. Meanwhile, cheap money available as a result of ultra-loose monetary policy has led to an explosion of capacity.
Big brands vs. ‘nichism’: While big brands are struggling to reach younger consumers via traditional media channels, the success of smaller brands is being driven by social media and the infinite shelf (the apparently unlimited range of products available online as opposed to physical stores).
Authenticity: Consumers are seeking more ‘authentic’ brands. This takes a number of guises, including natural/organic, locally produced, genuine and high-quality. Again, it is hard for large multinationals to compete.
Shifting channels: Subscription services, convenience stores and ‘click & collect’ are all rising in popularity. In developed markets such as the US, online shopping is the only channel within retail which is still growing, and, within the online market, mobile has now overtaken desktop sales. In the emerging world, mobile is driving e-commerce penetration.
Mind the gaps: Weak global growth is throwing existing differences between countries, industries, and companies into sharper relief.
Finding value: Value retail stands out as one segment which might weather the threats of de-globalisation and rising unemployment, as consumers become increasingly value-conscious. Relatively low store costs should also protect it from e-commerce and rising labour costs, with a higher minimum wage also supporting the spending power of lower-income consumers.
From goods to services: Irrespective of whether Trump unravels Obamacare in the US in 2017, the trend of health-care costs taking a bigger share of the consumer wallet will continue globally, making us cautious on more discretionary areas such as ‘softline’ retailers.
Data analytics: The ability of companies to collect, analyse and implement the findings from customer data is providing an even bigger competitive advantage, and one which we believe separates winners from losers. Data analytics can be used to target the most valuable clients and improve the in-store merchandise mix, as well as to lower costs.
This is just a taster of some of the ideas we’re thinking about, and as the year goes on we hope to share some of them with you in more detail – stay tuned!
 A softline retailer is one which sells goods which are literally soft, such as clothing or footwear.
Any reference to a specific security, country or sector should not be construed as a recommendation to buy or sell investments in those countries or sectors.