European markets retreat, while Dunelm and Halfords deal with supply chain pressures

“Economic growth fears have cast a black cloud over global markets, leading to some hefty share price declines across Europe on Wednesday. The FTSE 100 fell 0.8% to 7,090 while the major markets in mainland Europe suffered declines greater than 1%,” says Russ Mould, Investment Director at AJ Bell.

“Only five stocks on the FTSE 100 were in positive territory, led by Smiths Group which has received a better offer for its medical arm. Healthcare, industrials, real estate and financials led the FTSE lower.

“Investors on the whole have enjoyed a fairly decent run this year, but now attention is turning from the post-lockdown spending splurge to how corporate earnings might fare next year.

“There is a sense that some of the market forecasts have been too optimistic and so there could be some share price disappointment unless we see GDP figures pick up and the Covid Delta variant stops causing so much trouble.”

Halfords / Dunelm

“Supply chain issues are putting pressure on companies around the world, with the UK particularly affected because of driver shortages. It is one of the biggest threats to the post-Covid recovery story and certainly shows no sign of easing as we enter the final part of 2021.

“Dunelm and Halfords are among the latest companies to flag supply chain-related pressures, although both companies remain upbeat.

“Look a bit closer and you’ll see divergent fortunes.

“Dunelm has been busy restocking its warehouses after strong demand in its 2020 financial year ran down its stockpiles, and it seems to have escaped any problems on this front. It pays close attention to stock levels to ensure it can meet customer demand and management has also been working hard to mitigate inflationary cost pressures from raw materials, freight costs and driver shortages across its industry.

“Halfords on the other hand seems to have been fighting an uphill battle for its cycling operations. Demand hasn’t been this strong for two-wheeled power in years, but Halfords hasn’t been able to capitalise on the trend.

“A typical experience in its stores since Covid struck has either been empty shelves as all the bikes have been sold, or a row of shiny new bikes on display which were actually customer orders waiting to be collected.

“Staff have been turning customers away, saying they would be better off placing orders via its website – which isn’t exactly good service. Store mechanics have been stressed and customers have either left disappointed or had to queue for ages.

“Supply chain problems would suggest getting hold of a new bike will continue to be tough well into 2022. Halfords says children’s bike availability is better than adult bikes, which should mean it can still capitalise on the seasonal spike in demand around Christmas. But otherwise, there isn’t a lot more the company can do apart from try and encourage people to buy electric bikes where there is some product availability. The problem here is the high price point.

“The retail sector overall faces the potential to have a wash-out Christmas trading period if it cannot get adequate stock in the next few months. Even then, getting the stock out to customers may equally be a problem if there aren’t sufficient drivers.

“Perhaps we’ll see tens of thousands of apologetic notes under the Christmas tree this December, with people saying they had ordered a certain present, but it won’t arrive until next Easter.”

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