For most UK retailers, 2018 was a year they would rather forget. For hedge funds that foresaw the growing blood on the high street, however, it was probably a banner year.
Longtime stalwarts of the British retail industry have been a popular target for short sellers — investors that look to profit from falling share prices — and not just because of the weaker consumer confidence that some commentators have pinned on Brexit.
Many old-school retailers have struggled to roll out convincing online offerings, while large store estates have proved an albatross around their necks. Property deals struck in the good times have left companies locked into long-term leases that are hard to break.
But many hedge funds are not cutting back their bets just yet, despite making large profits betting against listed companies such as department store retailer Debenhams, whose share price fell more than 80 per cent last year.
Almost a fifth of Debenhams’ available stock is still on loan to short sellers, according to data from IHS Markit. The retailer’s bond prices are also signalling to many that there is more pain to come, with the price of its £200m 2021 bond slumping to little over half of face value in the wake of a dramatic boardroom coup last week.
Recent trading at Marks and Spencer has also been disappointing, although its stock market performance was less disastrous in 2018, with shares dropping more than 20 per cent. Interest in betting against its stock is on the rise, however, with short sellers having now borrowed more than 16 per cent of its free-floating shares.
Hedge fund managers’ prophesies of doom are not constrained to bricks-and-mortar retailers. Short bets against Asos have risen dramatically in recent weeks, after the online fashion pioneer warned on profits in December.