Comment from Colin McLean, managing director, SVM Asset Management:
- Digital disruption creates serious risks for blue-chip investments
- Retail sector hardest hit by the growth of tech giants such as Amazon and Alibaba
- Challengers also threatening traditional banking and insurance
“High-capacity broadband combined with cloud and mobile computing, big data and smartphones is disrupting many sectors and forcing new entrants to apply innovative business models. The risk this creates for UK blue chips should ring alarm bells for investors.
“The retail sector is being hit particularly hard, lagging the main share indices across the whole of Europe. On the UK high street activity continues to shrink, with speciality shops and restaurants that depend on footfall also seeing weakness in retail parks and shopping centres.
“The main warning signs have been in the growth of tech giants such as Amazon and Alibaba. The only stores that appear to be coping with this onslaught are those with a strong online offering, such as John Lewis. The intelligence brought into homes and everyday objects via the Internet of Things, and new services like Google Home and Amazon Dash, will see even more products circumvent bricks and mortar retailers.
“Other sectors are being disrupted too. Bank branch closures are just one tangible sign of a change in customer demand, with many people now managing their accounts entirely online. On top of this, new challengers are using big data to compete with traditional banks, targeting niches of profitable customers with direct lending methods, and using technology to monitor risk.
“Elsewhere, financial technology such as Blockchain could accelerate demonetisation and make way for competitors that are currently not even in the finance sector. New data analysis could disrupt insurance, with phones now used to gather data on lifestyle, preferences and risks. The biggest threats in this space are in Asia – Aliababa and Tencent Holdings have already moved into digital banking, scooping up customers with astonishing ease.
“Investors need to consider the risks these developments create for their portfolios. The gaps in the high street, such as HMV and Blockbuster, are testimony to this.”