Iceland, Steinhoff, Matalan, Takko, Intu - Retail therapy for a released population

A couple of press pieces caught our attention over the weekend and this morning. UK retail - in the eye of the storm - is seeing increasing deal flow and the promise of pent-up demand.

Savings:

The FT carried a story about the $5.4tr of savings accumulated globally during the pandemic. According to Moody’s Analytics, the additional savings represent around 6% of global GDP. In the US, the figure is nearer 12% and the UK it is around 10.5%. The expectation is that once normality returns, consumer spending will see a boost. We would expect the primary beneficiaries to be restaurants, bars, film theaters and other pastimes denied people during lockdown. We would also expect to see some further strength in bigger ticket spending such as automobiles and home improvement. After months of doom and gloom around the retail space, rumours of its demise do seem exaggerated. 

Leon:

Today QSR chain Leon was bought by the EG Group (Issa Brothers and TDR Capital). Their confidence in the future for restaurants is a boost. Interestingly John Vincent (one of the sellers and a founder of Leon commented in the FT that he had been “all set up to spend the next 5-years building up after Covid, taking advantage of real estate opportunities”.  

Iceland:

Supermarket chain Iceland recently has also ventured into the Restaurant trade with its purchase of the Individual Restaurants Estate out of administration for a reported £40m.  

Steinhoff:

In the UK and Eastern Europe Steinfoff is looking at an IPO of Pepco business. Pepco is a pan-European discount retailer. We may see more working and shopping from home in future, but the discount sector is shielded by the high delivery costs relative to a small purchase basket. 

Retail Parks:

In high streets, footfall is down 35% from two years ago, while in shopping centres, it is down 28%. However, in retail parks, the decline was just 2.0% - see Matalan and ultimately Takko.  The reopening of indoor hospitality on 17th May will provide a further boost to retail destinations. 

Lower US Default Rates:

Last week Fitch ratings published new 2021/22 default projections for US leveraged loan and high yield markets. Easing of restrictions and government stimulus have led the agency to lower its 2021 loan default expectations to 2.5% from 4.5% and its high yield default rate from 3.5% to 2.5%. The combined default rate expectation for 2022 has been reduced to 2.5%-3.5% from 4.0% to 5.0%. Fitch does point out the structural changes to markets and how it may impact some retail operators in the longer term.