Will retail challenges shift the DB pension scheme landscape?
March 01, 2021
You may be wondering what impact the economic shock faced by the retail and hospitality sector is having on the pension landscape. The retail and consumer sector as a whole has a number of large pension schemes with over £1bn in assets. So would it follow that the pension landscape could be impacted by the distress and failures being predicted?
Yet despite the widely reported doom and gloom of the high street, retail has performed better and recovered quicker than expected. Not all categories did well but online shopping boomed, and consumer sentiment recovered after the first lockdown, remaining resilient thereafter. Christmas trading also held up. These have been discussed as part of our Retail Briefing.
Retail is also by no means the worst performing industry during the pandemic: accommodation and food service, arts, entertainment and recreation fared much worse. By comparison, retail recovered to pre-pandemic levels by July 2020 - in line with our findings in the Pensions Support Index. However, this was not before witnessing the fall of linchpins on the UK high street scene which sponsored material pension schemes.
The companies able to keep their doors open and/or trade online have thrived. Groceries benefited from essential status and diverted hospitality spend to supermarkets. More time spent at home led to specific categories also benefiting, including DIY, furniture and electricals. And the online boom is set to continue across almost all retail categories, with food and grocery experiencing the highest growth rate. Although consumers are increasingly happy to shop online, where they want to see products in store we have seen shoppers visit out of town locations rather than return to traditional high street stores and shopping centres.
What does this mean for the DB pensions landscape?
While businesses with defined benefit schemes are more likely to have been established for some time, rather than newer online pureplay retailers, it does not mean that store-based retailers have all struggled. The grocery and household goods categories have performed well and there are a number that sponsor large schemes, ranging from £1bn to £15bn. Clearly there have been some high profile failures of large retailers with pension schemes, but adapting with online and click and collect has become the saviours of many retailers.
Fashion is the one category that has yet to recover, but it will bounce back once we are allowed out and into the shops. However as restrictions are gradually eased there is likely to be competition for the money saved up over the multiple lockdown periods. The challenge will be to understand whether the recovery is permanent or spend will drift away from retail towards other discretionary sectors.
So to write off retail, especially the traditional bricks and mortar retailers, would be wrong. There will be those that have adapted and evolved and will be well placed to benefit from the recovery, and those that won't. In fact, David Fairs of TPR commented in our recent podcast that previously successful businesses may not actually be profitable and sustainable beyond the crisis as a result of changing consumer demand. So it is important for pension scheme trustees to keep on top of current trends, as well as monitoring and understanding the specific challenges the sponsors of their schemes face. Corporates will need to ensure they are positioned to take advantage of the recovery, and that there is sufficient finance in place to support this.
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