The Issa brothers’ £6.8bn swoop on Asda may be an exception that proves the rule. While the forecourt convenience retail entrepreneurs have put their money into a primarily bricks-and-mortar business, other people’s cash is increasingly going elsewhere.

That applies to consumers, and therefore it is the choice too of investors, who peer over the tops of their face masks to gauge not just where the money came from yesterday, nor where it will be made today – but where the best returns will come from in future.

Investors are swinging ever more behind businesses that have strong online and multichannel operations. 

Last week, grocery etailer and platform specialist Ocado’s valuation overtook that of Tesco, when it neared £22bn. It has since fallen back and Tesco reclaimed its crown.

That development came weeks after The Hut Group floated with a market cap valuation of more than £5bn – larger than Marks & Spencer or Sainsbury’s

The Hut owns online health and beauty retail businesses including Myprotein and Lookfantastic. Like Ocado, it also offers end-to-end ecommerce technology infrastructure, THG Ingenuity, that it touts to other businesses from Boots to Nestlé and Mercedes-Benz to Hotel Chocolat. 

The Hut achieved that valuation despite governance concerns. In a volatile climate, investors didn’t want to miss out on what could be a big growth story.

The uncertain environment created by the Covid-19 pandemic has accelerated consumers’ behavioural shifts. In the spring, as lockdown was imposed, shoppers flocked online. Months into the health emergency, as a quarter of the population lives under local restrictions, the convenience of online shopping and appeal of new types of online services show little sign of diminishing.

“Months into the health emergency, as a quarter of the population lives under local restrictions, the convenience of online shopping and appeal of new types of online services show little sign of diminishing”

The constantly changing, “come back-don’t come back” guidance around offices is making working from home ever more entrenched, piling further pressure on big city centres where retailers have traditionally traded strongly from flagship stores. 

This week, an Institute of Directors survey of 1,000 companies revealed that almost three quarters intended to retain increased working from home hours, while more than half reported that they would reduce their long-term use of workplaces.

Against such a backdrop, the same investor interest evident in public ecommerce businesses is coming to the fore in private company deals, too.

Specialist investor True Capital, for instance, has just injected a further $100m (£77m) into online cycling and running fitness platform Zwift – a company in which it has held an interest since December 2018. Other investors include private equity giant KKR and Amazon

The latest funding round values Zwift, founded in 2015 and well placed to grow in a stay-at-home world, at around $1bn (£773m). It’s one example of what True founder Matt Truman describes as the increasing importance of “technology at the interface of consumer change”. He says that Covid has brought greater awareness of the possibilities of the “on-demand” economy.

Building relevance

As retailers seek to maintain and build relevance, it’s something that more retailers should tune into. Indeed, some already are, evident in tie-ups such as John Lewis’ partnership with Zwift rival Peloton. 

At the opposite end of the investment scale, children’s clothing and toys etailer Kidly has just secured Series A funding of £4.2m from Hargreave Hale AIM VCT and private investors, to lay the ground for growth. 

Founded in 2015 by former Asos ecommerce director James Hart, Kidly’s backers include Asos founder Nick Robertson. Kidly, too, has been performing well during the pandemic, Hart says, “with the restrictions on movement driving parents and relatives to seek innovative ways to entertain and educate young children from home”.

The ongoing shifts driven by the health emergency don’t mean that stores are on the way out. Shares in ABF, benefiting from the performance of bricks-and-mortar-only fashion giant Primark, are up on a six-month basis after recovering from lows suffered at the height of lockdown. 

“Where investors go will influence where retailers invest, which will mean more in online despite the profitability challenges that often brings”

But it is generally retailers with multichannel models whose shares have performed well as they combine bricks and clicks. Kingfisher, which is shifting to a digital-first approach and prioritising services such as click and collect and picking from stores, is not far short of a year high. Dunelm, too, has been largely on an upwards trajectory since April. 

Where investors go will influence where retailers invest, which will mean more in online despite the profitability challenges that often brings. More partnerships are likely to be one solution.

When Marks & Spencer shelled out £750m to acquire a 50% share in Ocado Retail, many believed it paid a very full price. But what would that deal cost now? It certainly wouldn’t be less. 

Despite the Asda deal, for many retailers, the future is increasingly digital-first. The challenge will be identifying the right opportunities – whether partnerships, acquisitions or new experiences and services.