Investing in FTSE 100 retail stocks appears to be increasingly risky as the cost of living crisis worsens. Indeed, some of the news flow surrounding people’s finances is getting very scary indeed.
Recent data from University College London showed that 38% of Britons are now worried about their finances. Financial fears are now at their highest since the start of the pandemic. And signs are emerging that this is having a significant impact upon the retail environment.
Last week also saw the British Retail Consortium advise that UK retail sales rose just 3.1% in March. This was down sharply from the 6.7% rise printed in February.
Helping consumers through it
Declining consumer confidence and reduced spending power means shoppers will be watching the pennies carefully. It’s a scenario I think actually plays into the hands of low-cost retailers like B&M European Value Retail (LSE: BME).
Okay, demand for B&M’s lines of discretionary goods could fall as consumers rein in spending. However, this pressure could be cushioned by shoppers looking to maintain their standard of living but switching down to B&M’s lines from more expensive comparable products at other retailers.
Furthermore, I feel B&M’s increased focus on grocery and essential fast-moving consumer goods will help protect profits. Demand for the foods, beauty products and household goods it sells through its B&M and Heron Foods stores remain stable during good times and bad.
Risk vs reward
The B&M share price is broadly unchanged over the past year. But it has been jumping around wildly in that time. It’s not just concerns over B&M’s revenues that have frayed investor nerves. Fears over the retailer’s margins have also grown as labour, energy and product costs have jumped.
Still, I think B&M’s share price looks quite attractive from a risk/reward basis today. Right now, the FTSE 100 retailer trades on a forward price-to-earnings (P/E) ratio of 13.8 times.
This is a pretty attractive valuation, in my view. I don’t just think B&M could be a great buy for me in the current economic climate, but I’m also interested in the firm’s long-term profits outlook.
A FTSE 100 share I’d buy
Value retail has been growing rapidly over the past decade. It reflects the savvier approach of modern shoppers during upturns and downturns. It’s a segment of the market that was tipped to keep growing strongly before the cost of living crisis emerged too.
And B&M specifically has a strong brand and an extensive store network in the UK and France. This should allow the company to capitalise effectively on the growing popularity of value retail.
The business has also rebranded its 100-plus Babou stores in France with the B&M fascias to boost trade. Meanwhile, the FTSE 100 firm has plenty more to come from its store expansion programme (it opened more than 40 new B&M stores in the nine months to December).
So I think B&M could prove to be a top growth share over the next decade. And a forward dividend yield of 3.1% would give me income to enjoy too.