FTSE 100 Survival Presents Latest Challenge for U.K. Retailers

(Bloomberg) --

Kingfisher Plc's demotion from the FTSE 100 index provides the latest sign of the mounting challenges facing Britain's traditional brick-and-mortar retailers.

The owner of Britain's B&Q and France's Castorama chains will join former U.K. retail bellwether Marks & Spencer Group Plc in the mid-cap FTSE 250 Index, FTSE Russell announced Wednesday after markets closed. NMC Health Plc and TUI AG were also relegated from the FTSE 100, with Fresnillo Plc, Intermediate Capital Group Plc and Pennon Group Plc being promoted.

Like Marks & Spencer, demoted from the benchmark index six months ago, Kingfisher has seen its share price slide over the last five years. Increasing competition from online and discount retailers and an onerous property market continue to make life tough for many of the sector's stalwarts, who now also have to contend with the impact of the coronavirus. Where retailers had a 6.2% weighting in the FTSE 100 back in 2007, that has now fallen to 3.4%, or just 2.6% for brick-and-mortar retailers, according to data compiled by Bloomberg.

“More and more retail-based companies are being edged out of the FTSE 100, simply because it's the way the markets are moving,” Helal Miah, an analyst at The Share Centre, said by phone. “Structurally, we're not shopping on the high street as much, we're preferring to do things online. And for the supermarkets it's just this incessant competition from the German discounters.”

Miah sees retailers becoming an even smaller part of the benchmark gauge in future, to be replaced by financials, property and services businesses. With a market value of 4.4 billion pounds ($5.7 billion), Wm Morrison Supermarkets Plc hadn't been far away from losing its spot this time, while grocery rival J Sainsbury Plc is also toward the lower end of the FTSE 100 by market value.

The changing face of retailing is illustrated by stocks that have recently arrived in the benchmark index: online grocer Ocado Group Plc joined the gauge in June 2018, while sneaker seller JD Sports Fashion Plc gained FTSE 100 promotion a year later. Restaurant delivery firm Just Eat Plc, now known as Just Eat Takeaway following last year's merger, first entered in late 2017.

“There is a clear point to be made about technology,” Neil Wilson, chief markets analyst at Markets.com, said by email. “That is the real lesson -- that even in retail you need to be a technology leader in order to thrive, you cannot just sit back on your bricks-and-mortar sales and hope online will magically work.”

--With assistance from Michael Msika.

To contact the reporter on this story: Lisa Pham in London at lpham14@bloomberg.net

To contact the editors responsible for this story: Beth Mellor at bmellor@bloomberg.net, Paul Jarvis

©2020 Bloomberg L.P.