1 The Right Way to Invest

REIMAGINING RETAILH O W W E S H O P

Not a Deposit Not FDIC Insured Not Guaranteed by the Bank May Lose Value Not Insured by any Federal Government Agency

2 How We Shop

Years before the coronavirus, headlines proclaimed that the “death of retail” and the “retail apocalypse” were imminent in the US, given the struggles of brick-and-mortar stores — which left us with few superlatives that could adequately describe the industry landscape in 2020.

Indeed, it’s difficult to overstate the impact that COVID-19-related lockdowns have had on the retail industry, not just in the US but around the world. The timing of those lockdowns varied as the virus made its way around the globe, but the pattern was largely the same: + Near-total shutdowns. Stores could open their

doors only if they provided essential goods like food and medicine.

+ Phased reopenings. “Non-essential” stores began opening their doors — more quickly in some areas than in others, and with varying restrictions.

+ And then … what’s next? Does the retail industry create a “new normal,” revert to the “old normal,” or something in between?It’s easy to assume that “the apocalypse”

may have finally arrived for retail, but lines around newly re-opened stores suggest that the story may not be that simple. To help us imagine the possibilities for how we shop going forward, we talked to Invesco investment experts who cover this industry on-the-ground in the US, Europe and Asia. R

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What’s in store for this hard-hit industry?

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03Malls seek to be more than just a shopping destination.Perhaps the most dramatic changes to the retail landscape will be seen in malls, which face a difficult set of circumstances as their traditional anchors — department stores — come under increased pressure. What could redevelopment look like?

02Luxury brands lean on digital solutions for exclusive experiences. Luxury brands must adapt their “high-touch” model of customer service to the demands of social distancing. Though the two concepts may seem to be at odds, luxury stores have one key brand attribute on their side — exclusivity.

01Grocery shoppers have an increased appetite for e-commerce. The epitome of an “essential business,” grocery stores were mentioned as a rare retail bright spot by our experts in the US, Europe and Asia. But it’s been far from “business as usual.” What trends may shape the experience in the months and years to come?

It’s difficult to overstate the impact that COVID-19-related lockdowns have had on the retail industry, not just in the US but around the world. Going forward, does the retail industry create a “new normal,” revert to the “old normal,” or something in between?

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01An Appetite for E-commerceGrocery shoppers stock their shelves with the help of technology.

some level of accelerated adoption will be maintained for the foreseeable future — driving a long-term behavioral shift that may not revert back to prior routines.”

Shusuke Komuro, a Research Analyst for Japanese equity strategies, echoed that sentiment, noting that concerns about physical safety in stores may outweigh privacy concerns about shopping online. “Once we experience the convenience, it is unlikely that we give it up,” Komuro said. “I don’t think people will go back to a less-efficient world even after COVID-19.”

More food in more places. When shoppers find a grocery retailer they trust, they tend to stick with that store — and that can build a dedicated consumer base for other products, says Matt Titus, a Senior Portfolio Manager focused on US value equity strategies. Big-box retailers and smaller convenience stores have already been adding more grocery items to their inventory, and this trend could accelerate in years to come. “Getting into food is important to generate ‘sticky’ customer traffic,” Titus said. “If I’m buying food at a big box store and my kid needs shorts, I’ll just grab them from there

The epitome of an “essential business,” grocery stores were mentioned as a rare retail bright spot by our experts in the US, Europe and Asia. But it’s been far from “business as usual.” Curbside pickups, home deliveries, social distancing, shorter hours, plexiglass barriers, mask requirements, and supply shortages have been hallmarks of the grocery store experience as the pandemic spread.

What trends may shape the experience in the months and years to come? Our experts point to a few:

Growth of e-commerce. Grocery stores have traditionally lagged other types of stores for online shopping, as many people prefer to choose their own meat and produce. But the pandemic forced many people to suddenly get comfortable with the idea — and some may never go back. “The biggest impact here is the increased adoption of e-commerce in the very large and relatively underpenetrated food and consumables categories,” says Ido Cohen, a Senior Portfolio Manager focused on large-cap growth and consumer trend equity strategies. “While the shift to e-commerce may be experiencing an unusual boost during this period, we believe

Grocery stores have probably been one of the biggest beneficiaries of what occurred. Consumers have shifted their budgets, and a lot of that has gone straight to grocery.”Perry Chudnoff Managing Director of Asset Management, Invesco Real Estate

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their buildings to allow for more storage and distribution space and fewer display shelves. “You could build or lease a new industrial facility or distribution warehouse,” says Chudnoff, who’s based in the US. “But if you already have a huge grocery store, you can figure out how to better stock it and do some of the delivery and shipping out of that building. That might be an option for grocers, instead of using the space to display every paper towel roll you have, for example.”

In China, the supply chain system is fragmented, notes Lorraine Kuo, an Associate Director of Investment for Invesco Asia Pacific. The challenges were on full display early this year when transportation between provinces was closed to stem the spread of COVID-19, and the delivery of goods was compromised. The large e-commerce players who had more control of their logistics system — from warehouse to last-mile delivery — had the advantage in customer service, Kuo says. “It’s very capital-intensive to do that, but over the past few months, the advantage of this approach was shown. I think after this, more companies will start to realize the importance of greater supply chain control. They may want to reallocate goods into different regions and build stronger supply chain management systems to fulfill orders.”

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instead of taking a separate trip to the mall. Food is really hard to break into, but really important.”

Rethinking the supply chain. As COVID-19 spread around the world, toilet paper, pasta, flour and other goods quickly disappeared from store shelves. Hoarders were often blamed, but the real story was more complicated. “Food retail has long been running on a “just-in-time” model because no one wants to maintain the warehouse space with more than a few days of supply,” says Thomas Moore, a fixed income Fund Manager based in the UK. “There was all this stuff in the press about people stockpiling. However, except for a relatively small amount of people, it wasn’t hoarding — it was people buying one extra packet of spaghetti. But if you multiply that across the population, that instantly emptied the shelves because there wasn’t one extra packet of spaghetti for everyone. Even people who don’t think of themselves as preppers might aim to have two weeks’ worth of food in the house at any given time. If everyone does that, that’s a real change in behavior.

Supply chain challenges could play a role in reshaping parts of this industry. Perry Chudnoff, Managing Director of Asset Management for Invesco Real Estate, notes that grocery stores could look to reconfigure

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Unlike Other Categories, US Grocery Store Sales Rose During the Lockdowns US retail sales, year-over-year change, May 2020 versus May 2019

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UK Shoppers Stock Up

£1bEstimated value of that stockpiled food.2

20%In the four weeks leading up to the UK’s March 23 social restrictions, UK grocery sales surged 20% as people stockpiled food.2

75%Online grocery sales in the UK rose 75% from mid-April to mid-May.1

1 Source: The Guardian, "UK corner shops and independent grocers ring up 63% rise in sales," May 27, 2020.2 Source: Reuters, "Britain's supermarkets wrestle with coronavirus demand conundrum," April 7, 2020.

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“ High-touch” Service, From a Distance Luxury brands lean on digital solutions for exclusive experiences.

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so when COVID-19 happened, it was a matter of fine-tuning and modifying the model,” he noted.

Lorraine Kuo, an Associate Director of Investment for Invesco Asia Pacific, added that these services, combined with a greater emphasis on social media influencers using these products, helped maintain the demand for luxury even while shoppers were staying home. “China was locked down from February to April, and during those months, the website business picked up very strongly,” she said. “And when cities began to open, they experienced very long queues outside of the luxury stores. These strategies helped them to live through that period of time.”

And yet, there’s no denying the long list of headwinds facing this sector — higher unemployment and economic uncertainty, cancellation of social events where people would wear status items, and a reduction in international tourism, which fuels quite a bit of luxury spending. All that said, there is one bright spot, says Ido Cohen, a Senior Portfolio Manager focused on large-cap growth and consumer trend equity strategies. “There is a segment of the luxury market we think will benefit: We believe luxury e-commerce sites are well-positioned to take share during this period and after as consumers seek to buy luxury from the comfort of their homes.”

On the other end of the spectrum from grocery stores are the luxury brands, which must adapt their “high-touch” model of customer service to the demands of social distancing. Though the two concepts may seem to be at odds, luxury stores have one key brand attribute on their side — exclusivity.

“High-end retailers in London have been inviting their customers to make appointments to essentially have the store to themselves for a period of time,” says Thomas Moore, a UK-based fixed income Fund Manager. “Even places where there wasn’t a personal shopper service broadly available before, that’s now an element of it.”

As would be expected, luxury stores have elevated their focus on safety — from sanitizing jewelry between customers to installing UV handrail cleaners on escalators. But for those who just aren’t ready to shop in-store just yet, that’s where innovation and technology really come into play.

William Yuen, an Investment Director for Invesco Asia Pacific, notes that luxury retailers and brands are pouring a great deal of time into creating a sense of exclusivity through digital channels — from digital appointments with personal shoppers to the creation of high-end videos that showcase a product’s features in the most flattering light. “I do believe that a lot of the initial groundwork had already been done,

In the luxury space, there’s a real focus on the personal touch … to the extent that this is still possible.Thomas Moore Fund Manager. Fixed Income

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Curbside Pickup for Luxury ItemsSome of the methods employed by luxury brands don’t look that much different from those used by other stores—longer return times, delivery services, and even curbside pickup.

“Sometimes, these customers want to go into stores and see things, but sometimes they know exactly what bag they want to buy — they’ve been eyeing it for six months,” noted Perry Chudnoff, Managing Director of Asset Management for Invesco Real Estate. “In those cases, it doesn’t matter if you go into the store to get it or have it picked up.”

Handbags: As Seen on Social MediaSocial media has changed the way that luxury consumers can “see and be seen,” and COVID-19 has accelerated that. Could this impact which products make it to the shelves? Matt Titus, Senior Portfolio Manager for US Value Equities, weighs in.

"Take traditional handbags, for example. You can’t see them in a selfie, and they don’t go with the athleisure styles that are popular now. But backpacks and crossbody bags fit that style and can be better seen in selfies" Titus says. "Companies need to continually evolve their product types to better align with current fashion and social trends. In addition, I believe companies need to continue to spend on technology to more effectively reach their customers and build brand loyalty in a rapidly evolving digital world."

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11 How We Shop

03The Evolving Mall Malls seek to be more than just shopping destinations.

Perhaps the most dramatic changes to the retail landscape will be seen in malls, which face a difficult set of circumstances as their traditional anchors — department stores — come under increased pressure, creating a ripple effect that impacts the smaller, “inline” stores.

“There are over 1,000 malls in the US, and there was already a bifurcation among them, but I believe we’ll see that grow,” says Perry Chudnoff, Managing Director of Asset Management for Invesco Real Estate, “The good ones may become better and more coveted. I expect some of the lesser-performing ones to die off. And in the middle, there’s the potential for redevelopment. In the near term, redevelopment has slowed because companies either don’t have capital or don’t want to spend it right now. But over time, I believe that has to happen.”

What could that redevelopment look like? Certainly, there’s been some acceptance of nontraditional anchors — instead of a big department store, picture grocery stores or gyms, entertainment spaces, hotels or even offices. “We’re starting to see more and more consideration for co-working locations to backfill vacant retail anchor space.

That sector is somewhat limited right now due to social distancing, but they are adapting, and we will likely continue to see more co-working components brought into malls going forward. As long as parking capacity can accommodate the volume, what’s better than people coming in and working eight hours there — they’ll likely buy their morning coffee there, eat breakfast, lunch and maybe dinner there, and run errands and shop before they go home.”

Potentially, more malls could incorporate an open-air layout as consumers may be more comfortable queuing up outdoors post-COVID-19, says Ryan Miller, a Senior Research Analyst for Invesco Fixed Income, focused on high yield. And there may be less space devoted to stocking inventory. “I think retailers will try to foster more of a luxury-type vibe or experience where you can pick from fewer, select items, but the physical stores will have leaner inventories and will likely play greater roles as e-commerce fulfillment centers going forward,” Miller says. This model could help alleviate another trend — the vast amount of shopping space in the US. “We are incredibly overstored here in the US,” Miller says.

Retail in the US was already ailing. Then came COVID-19.”

Matt Titus Senior Portfolio Manager, US Vaue Equities

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US Store Closures Expected to Skyrocket

reverse for three reasons: 1) a slowdown in tourism, which fueled shopping in large cities, 2) more employees working from home, making the suburban locations more convenient for them, and 3) concerns over using public transportation to travel into the city centers.

In Europe, the retail landscape varies quite a bit. The UK has been oversupplied with department stores (although not as much as the US), whereas the Netherlands, Germany and France generally have a different retail model anchored by boutiques on the one hand and big-box stores on the other. “Retail is one of those spaces where the cultural differences are remarkable,” says fixed income Fund Manager Thomas Moore.

So is there a model that’s better? Moore said it’s all relative. “Really, what you discover is which retailers are beloved by their customers. There are national champions all over, and it’s interesting to see how well or poorly the model translates. You can’t simply import those models elsewhere and see it succeed. I’m not sure that follows.”

An ongoing trend in the UK has been the “demise of the high street,” with stores in town centers closing due to pressure from e-commerce as well as suburban big-box stores. COVID-19 amplified this trend as people order more online, seek larger stores for social distancing, and avoid public transportation into the city centers. But Moore notes that the demand for this experience has not gone away completely.

“The town center retail experience is going to be pretty tricky. And yet there seems to be demand for it,” Moore says. “Certainly, what I’ve seen in person in the UK, and read reports of in continental Europe, is a surge of people in stores. Lines out the door in certain places. I don’t know how much of that is just people coming out into the open and blinking their eyes in the sun, and how much of it represents a stable underlying level of demand. We will soon find out.”

In Asia, the situation is much different. “There are not a ton of malls in Asia that are dying,” Titus says. “There isn’t the high amount of retail real estate that there is in the US. That market has evolved much differently with much faster supply chains, and they serve customers differently, as Asian tech companies exploded into retail.”

But certain changes could be in store for retail stores in China. “China actually jumped quite fast from a traditional retailing model straight into the online world,” says William Yuen, an Investment Director for Invesco Asia Pacific. “But where there are malls, I expect them to become a lot more lifestyle observant, attracting tenants who want an experience — whether it’s entertainment, fun and games, or dining — and not just to shop.”

“Some of the bigger brands may use the retail mall more as a demo shop,” Yuen says. “You can go examine the merchandise, try it on, test it out, and ask questions, but your final purchase might be delivered to your home rather than available on-site.”

Whether the merchandise is available on-site or in a warehouse, it’s critical that companies have a strong technology system, so they know where their goods are placed, notes Lorraine Kuo, an Associate Director of Investment for Invesco Asia Pacific. “If I try to buy shoes, they need to know exactly where those shoes are located — in the front display, in the back room, or elsewhere. And it needs to be in real-time,” she says. “They cannot come back to me and say, ‘Oh, I’m sorry it’s out of order.’ That’s where offline retailers will need help to convert online. I think you’ll see the well-known e-commerce companies in China helping the offline retail malls transform into a new way of doing business.”

In Japan, the pre-COVID-19 trend was away from suburban malls and toward department stores in cities, notes Shusuke Komuro, a Research Analyst for Japanese equity strategies. However, that trend could potentially

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Chart illustrates the number of US store closures announced each year, with an estimate for 2020.Between 55% and 60% of 2020's store closures could be in malls.

Source: CNBC, “25,000 stores are redicted to close in 2020, as the coronavirus pandemic accelerates industry upheaval,” June 9, 2020. For illustrative purposes only. There is no guarantee the estimate mentioned will be realized. 0

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Invesco.com/us Invesco Distributors. Inc. ITPSHOP-BRO-1-E 08/20 NA8146

The opinions expressed are those of the author as of Aug. 1, 2020, are based on current market conditions and are subject to change without notice. These opinions may differ from those of other Invesco investment professionals.

This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions.

Forward-looking statements are not guarantees of future results. They involve risks, uncertainties and assumptions; there can be no assurance that actual results will not differ materially from expectations.