Sharetrack participants are probably familiar with the stock market's tarnished perception of the retail sector of late. Fuelled by earnings disappointments in blue-chip companies such as Marks & Spencer and Boots, the sector has substantially underperformed the general market over the past year.

The competitive environment for operators in this industry has become increasingly difficult, compounded by significant pricing pressures, heightened customer demands for quality and service, and the onset of globalisation and the Internet.

With incremental revenues from existing stores increasingly constrained, competitors want to derive economies of scale through acquisitions, overseas expansion or both.

For example, Tesco Kingfisher and Wal-Mart have set out detailed plans to adapt their successful business models to overseas markets, with their share prices being somewhat rewarded accordingly.

In addition, the industry has responded to the threat of e-tailing by pioneering a "clicks-and-mortar" approach to their existing business model. Companies such as Next (leveraging on its catalogue business) and Dixons (through the flotation of Freeserve) have turned the Internet threat into an opportunity. Similarly, some of the world's leading retailers including Casino and Marks & Spencer have established an electronic-based business-to-business exchange, which should enhance bargaining power, merchandising and inventory management.

Although the long-term branding power of leading retailers should not be underestimated, customers are focusing more on loyalty schemes, sophisticated technologies and service capabilities to meet their increasing lifestyle demands.

Those who fail to respond to such evolving tastes are in serious danger of permanently damaging their credibility and goodwill, Marks & Spencer being a potential case in point.

Nevertheless despite recent difficulties, Sharetrack investors should not lose sight of the cash generative capabilities of retailing companies.

Specifically, investors should look favourably on those that can deliver consistent growth in like-for-like sales, utilise existing assets more efficiently and optimise spending on new store development (as typified by Wal-Mart).

So for Sharetrack investors on a shopping spree, the special offers will clearly be the retailers with strong brands, substantial scale and cyberspace conviction.

Laura De Voy is a researcher in the private client department of Goodbody Stock brokers.