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Is Associated British Foods Revitalizing the High Street?

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LONDON -- The Office for National Statistics has announced that U.K. retail sales fell in December, with high-street footfall dropping to the advantage of online retailers. But should investors cash out of their brick-and-mortar retail shares in favor of online-only?

The ONS reported that U.K. retail sales dropped 0.1% on a seasonally adjusted basis; the quantities of goods sold came in 0.3% higher on the previous year, which was worse than expected. Essentially, sales have stagnated in the last five years, with the December 2012 figure only 2.4% higher than the volume of sales in December 2007.

Online contributed to 10.6% of the month's total sales, compared with 9.4% in December 2011, and retail businesses have taken notice. 

Thanks to its online Directory service, Next has seen its underlying earnings per share rally 75% since 2007, while the dividend has almost doubled. The firm also lifted its profit guidance by 14% after a successful December. Elsewhere, Home Retail's Argos is reinventing itself, with online at the forefront of its strategy to a click-and-collect service, and it also lifted its profit guidance after beating expectations in December.

So is the high street down and out?

Not quite. On Wednesday, Associated British Foods  (LSE: ABF  ) released its Q3 figures, which saw its Primark chain increase sales by a massive 25% year on year. But does it have an online presence? It does not -- it's one of the few big names seen on high streets across the country without that option, and yet it's going from strength to strength.

It's not just in the U.K., either, that Primark is benefiting: The chain opened six new stores in Spain in the third quarter, despite the country's economic struggles. In fact, with Primark's position as a "budget retailer," it could be argued it is because of reduced disposable incomes in Spain that Primark is targeting the country.

So what can we take from this? Well, with its expansive retail space in prime locations, Primark is able to stock hundreds of different lines and stacks of goods in each of its stores. Its customers know that they can enter a shop and try on a variety of outfits, safe in the knowledge that they will almost always find everything in their desired size, and thereby the chain increases the conversion of footfall to sales.

Meanwhile, other retailers often might run out of a popular size due to maintaining a "clean" display unit, i.e., promoting quality over quantity. But Associated British Foods is under no illusions about what Primark offers, and it's proving to be very successful with an approach that is bucking the trend and drawing people out of their homes and back onto the high street to visit its stores.

Yes, the Internet is imperative to some retail operations, but investors shouldn't dismiss a company purely on the basis that it lacks that option. There may be more buying opportunities on the high street than you initially think, so it's worth conducting further research.

Primark owner ABF was one of the FTSE 100's best performers last year, and it has begun 2013 strongly with its Q3 results. If you're looking for other investments in the Footsie, this free report reviews a "Super Investor" and several of his favorite FTSE 100 companies for 2013 and beyond. This large-cap expert boasts a nine-year run of beating the wider market, and the report reveals how he achieved it. To have your copy delivered to your inbox immediately and completely free of charge, simply click here now.


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