Sector spotlight: The future of retail

Matthew Bleakley

Actuarial Consultant and Retail Sector Champion

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LCP clarity:

The retail sector is a key part of the economy – comprising 5.2% of the UK's gross domestic product in 2020 – that a lot of investors have exposure to through property, equity, and increasingly, private debt portfolios.

LCP insight:

The sector has changed significantly since the Covid-19 pandemic, in the context of longer-term headwinds. That's one reason we generally advise investors to look global for their property allocations today.

Emerging from Covid-19 restrictions and returning to the office has been a small but significant moment of celebration for many office workers, previously limited to Teams calls from the kitchen table for the better part of the last two years. There have been some negative surprises with it too though; personally my favourite lunch option near the office has closed and seeing both Topshop and Debenhams – two of the iconic buildings of London’s West End – permanently shuttered gives a stark reminder of the turmoil playing out in the retail sector.

Covid-19 and the retail sector

The retail sector - where we go to buy things - has faced massive challenges throughout the Covid-19 pandemic, but these also play into a much wider trend. We have seen enforced store closures throughout the UK, posing a threat to the high street as we know it, exaggerated by multiple lockdowns. As many as 17,500 outlets closed their doors for the last time in 2020 (a rate of 48 per day) with a further 8,700 following suit in just the first half of 2021. There has been a change in working patterns with the shift towards working from home, resulting in lower footfall in cities. Is it possible that this could be a permanent change as employees and employers embrace permanent flexible working? Supply chains have also struggled due to worker shortages, transport disruption and the impact of climate change on infrastructure (no chicken in Nando’s or milkshakes in McDonalds?!).

This begs some big questions: how will we buy things? What are high streets for? What’s the future of the “shop” as we have known it for the last 100 years, and the buildings that house them?

These might sound like lofty, complicated questions, but they matter for consumers, citizens and investors alike.

outlets closed in 2020

What 2021 has told us

The pandemic has resulted in a significant increase in online shopping. The proportion of retail sales online peaked in February 2021 (37%). This reduced to 25% in January 2022, but is still higher than before the pandemic (20% in February 2020). Along with online shopping, consumers in 2021 splashed out on home improvements, takeaways, streaming subscriptions and pets – understandable when restrictions on socialising existed.

Proportion of retail sales online

A look ahead for the retail sector

The retail sector has additional challenges in 2022. Inflation is high. Energy bills are rising, along with national insurance contributions which will reduce disposable incomes across the country from April. There may be increased competition from other sectors as the government rolls out its plan to “live with Covid-19”. As the UK enters the third year of the pandemic, consumers are likely to focus their spending on experiences and entertainment which have been long-restricted, including holidays abroad, eating out, sport and live music – diverting demand away from the retail sector, but perhaps towards the direction the retail sector needs to move (with more of a focus on the experience).

What does this mean for investing?

The past and future challenges faced by the retail sector result in challenges for UK property investors – particularly in the funds that institutional investors (such as pension schemes) tend to use. UK property funds typically include around 20-30% in retail. But with structural trends such as shopping centres and high street shops looking challenged, and the shift to online, we tend to prefer the global property market to the UK property market these days. Let’s remind ourselves of the benefits of global property investing.

More opportunities leading to greater resilience

Global property expands your opportunity set not only to places like the US, Australia and Europe, but crucially it reduces the dependence on the fragile retail sector story playing out in the UK. Global property funds include newer areas like logistics hubs, data centres, co-working spaces, charging points and even broadband infrastructure. Regional differences in trends give much more resilience than a UK focused strategy. We explored the benefits of global property investing in more detail in the article below.


The story is not all negative – high streets and shopping centres are being re-imagined in creative and interesting ways, for example putting in-person experiences at the heart of the offer and making use of flexible models of space usage. Circularity is on the up with second-hand clothes expected to challenge fast fashion. “Creative destruction” may be a necessary feature of the transition period but a fundamental need for in-person connection and experience is likely to drive the longer term shape of the high street. Flexible capital looking to take risk and invest through that transition is likely to be rewarded.

The retail sector in the UK has gone through significant transformation over recent years, which is likely to continue into the future. You can avoid the structural challenges faced by UK property investors by going global.

Building the new normal

Hear more on the topic from Andy Jacobson on the Investment Uncut Podcast series

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