While the UK is moving into the next phase of the public health crisis, the economic ramifications suggest recovery is likely to be a long and challenging process.
This necessitates a prudent investment approach, investing in those companies which can combine resilience with sufficient flexibility to adapt to the ‘new normal', whatever that may mean.
One interesting sector is retail. The UK retail sector has been going through a period of significant change and this has only been accelerated by Covid-19. Social distancing measures and shifts in consumer confidence mean that the outlook may remain challenging.
However, companies that have been showing strong growth in recent months and have the balance sheet muscle to cope with the crisis will come out of this well placed.
Covid-19 has accelerated a shift in consumer behaviour. Those who had previously been reluctant to experiment with online shopping have been forced to adapt, as demonstrated in the recent results of pure-play online retailers such as Boohoo.
Beneficiaries also include predominantly store-based retailers that have invested in their multi-channel infrastructure in recent years.
For instance, Dunelm, the homewares retailer, have been particularly successful in this regard, reporting significantly higher online demand versus pre-Covid levels.
This is not to say that physical stores are redundant, however, although sites will need to adapt to the new environment and work harder to attract consumers.
Meanwhile, stores such as B&M, the discounter, have benefitted from their status as essential retailers and enjoyed strong demand even through the lockdown period.
B&M's like-for-like sales grew by 23% year-on-year in April and May. Against an uncertain economic backdrop, we are likely to observe substitution to discount-oriented supermarkets as consumers look to save on essentials.
That could present an opportunity for investors.
The UK continues to face significant economic headwinds, which the retail sector is not immune to. However, we do feel that there are some bright spots that remain compelling.
Investors can benefit from these trends by looking at retailers with strong balance sheets who are prepared to invest in their multi-channel infrastructure in order to thrive within the new environment.
Guy Anderson is lead investment manager on The Mercantile Investment Trust
• Consumers previously reluctant to use online retail options have been forced to adapt
• Retailers with strong balance sheets and a good online offering set to gain market share
• Social distancing measures will continue to impact retailers, reducing physical footfall
• Uncertainty remains around consumer confidence and spending habits