UK retail is injured but it has ripped off the plaster
The coronavirus has been seen in some quarters as the final nail in the coffin for the long suffering UK retail sector. But having embraced e-commerce earlier than elsewhere, the sector may learn lessons from the crisis faster and emerge stronger, which means UK CMBS holders might not be in as bad a spot as they imagine.
The UK retail sector has been one of the hardest hit by the economic fallout from the coronavirus pandemic, with few retail outlets left unscathed.
But counterintuitively, what looks like a death knell is happening to an industry was already well on its way towards transitioning towards an online economy.
Invesp, which compiles e-commerce data for retailers, showed that the UK had the highest average e-commerce revenue per shopper before the pandemic in Europe, second only to the US when taking into account the rest of the world.
With the retail industry set to lose £4bn over coronavirus, the UK sector's recovery is set to lag behind its European peers.
On the face of it, the market looks dire. The pandemic has led to the administration of Intu, the UK’s biggest shopping centre owner, and many businesses shuttered during lockdown will never reopen.
The data is being read as the last kick to a UK High Street that is already down. But in fact, the quantity of stores in trouble may be a sign of shops' and shoppers' willingness to embrace online business.
Intu’s collapse threatens around £2.5bn of CMBS, with investors of junior securitized real estate bonds set to take a hit if a property sales trigger pre-payment fees.
While the outlook is dire, the collapse of UK retail represents an opportunity for it to emerge ahead of its competitors. After all, UK retailers appear to have a strong head start compared to peers elsewhere.
Rather than causing the downfall of a healthy sector, the virus hastened the demise of many retail patients that were probably terminally ill. The faster investors and restructurers adapt to online business rather than propping up expensive bricks and mortar operations, the faster they will see returns.
CMBS investors would be wise to identify which shops on the High Street have planned for online transition, and which are still clinging to an outdated business model which is rapidly leaving them behind.