Consumer confidence slumps, Made.com up for sale and The Works still doing well

“It’s been a major week for the markets with increases in UK and US interest rates and now a mini-budget from the new UK Government,” says Russ Mould, Investment Director at AJ Bell.

“One on hand you have the central banks acting as the evil bad guys pushing up the cost of borrowing, and on the other you have the UK Government as the superhero trying to find solutions to ease the pain for consumers and businesses. As always, the big question is how these solutions will be funded.

“GFK’s Consumer Confidence index has tumbled to a new record low, illustrating how the general public is nervous about the outlook for their personal finances. This, combined with the Bank of England’s comment that the country may already be in recession, paints the gloomiest picture for the economy since the start of the Covid pandemic.

“The FTSE 100 managed to stay firm despite this troubling backdrop, helped by strength in pharmaceutical companies, utilities, retailers and housebuilders as well as a mixture of defensive companies that should persevere no matter the state of the economy, and sectors that could benefit from relief measures in today’s mini-Budget.”

Made.com

“When sofa seller Made.com joined the stock market, no-one would have thought the business would have been put up for sale 15 months later after a disastrous trading period. It floated at a time when people were sprucing up their homes having spent so much time indoors during the various lockdowns. Demand for new sofas was high and a lot of investors presumed growth would continue to be good.

“But Made.com quickly became unstuck thanks to supply chain problems with customers waiting months for their sofas to be delivered, leading to cancellations and frustration. Then the cost-of-living crisis bit and big-ticket items like a new three-piece were put on the backburner, all contributing to a severe slump in Made.com’s share price and a slew of profit warnings.

“It’s concluded that raising money on the public markets would be a struggle in the current environment, so the options now are to look at debt financing (which may not come cheap given how rates are going up and the company is deemed higher risk), bring in a strategic investor, merge with another business, or sell the whole company. Whatever happens, it looks like existing shareholders may be wiped out or be left with a mere fraction of their original investment.”

The Works

“It’s not all doom and gloom as shares in The Works jumped 36% on solid full-year results. Its value proposition is resonating with cash-strapped consumers who are watching their pennies but still want to buy things like birthday presents and the odd affordable treat.

“It also does well with ‘Back to School’ items and has historically been one of the go-to places to buy the latest playground craze, such as fidget spinners and slime in the past.

“The important thing to consider is that consumers are not going to stop spending altogether. They’re going to be more selective with their purchases, and that means potentially choosing lower-priced retailers. Theoretically this benefits The Works, but there is no guarantee it will stay on top.

“One could easily argue that a lot the stuff it sells – such as painting canvases, biographies of C-list celebrities and jigsaw puzzles – aren’t must-have items. Therefore, if times become a lot tougher, even The Works could be susceptible to a sharp decline in sales.”

These articles are for information purposes only and are not a personal recommendation or advice.