Contrarian Opportunities in UK Retail and Consumer Sectors: Navigating the FTSE 100's Resilience Amid Mixed Footfall and a Reviving Used Car Market

The UK retail sector in Q2 2025 has been a study in contradictions. While footfall on high streets declined by 1.8% year-on-year, retail sales volumes rose by 0.9% in June alone, driven by higher spending per customer and favorable weather. This divergence highlights a critical shift in consumer behavior: fewer shoppers, but deeper pockets. For investors, the challenge lies in identifying which segments of the market are adapting to this new reality—and which are being left behind.

The FTSE 100's Resilience Amid Retail Volatility

The FTSE 100 has shown surprising resilience, rising for nine consecutive trading days in Q2 2025 despite mixed retail data. This upward streak, its longest since December 2019, reflects a broader market confidence in the UK's ability to weather macroeconomic headwinds. However, the retail sector within the index remains under pressure. Food stores and non-store retailers (primarily online platforms) have outperformed, with online sales hitting a three-year high in June. In contrast, household goods and traditional non-food retailers have struggled, with footfall declines compounding their challenges.

The key to understanding this resilience lies in the sectoral splits. While high street footfall has contracted, the rise of e-commerce and the rebound in food retail have offset some of the pain. For example, non-store sales grew by 1.7% in June, reaching their highest level since February 2022. This suggests that the FTSE 100's exposure to digital-first retailers and food chains has insulated it from the worst of the retail downturn.

Contrarian Opportunities in the Used Car Market

Amid the retail sector's struggles, the UK used car market has emerged as a bright spot. In Q2 2025, transactions hit 1.996 million units, a 1.7% increase year-on-year and within 1% of pre-pandemic levels. Electrified vehicles (EVs) are driving much of this growth, with battery electric vehicle (BEV) transactions surging by 40% and plug-in hybrids (PHEVs) rising by 10.3%. This shift toward electrification is not just a trend—it's a structural change that could redefine the automotive sector.

For contrarian investors, the used car market offers two compelling angles. First, the normalization of new car sales has stabilized the supply of used vehicles, creating a more predictable environment for dealerships. Second, the rise of EVs in the used market presents an undervalued opportunity. While EVs still account for just 3.4% of used car transactions, their growth rate is outpacing internal combustion engine (ICE) vehicles. Companies that position themselves to service this transition—such as dealerships with EV charging infrastructure or parts suppliers—could see outsized gains.

The Risks and Rewards of Retail Sector Diversification

The retail sector's mixed performance underscores the importance of diversification. While traditional high street retailers face declining footfall, online platforms and food retailers are thriving. For example, the proportion of retail sales made online rose to 27.8% in June, up from 26.8% in April. This shift is not just a short-term anomaly; it reflects a long-term structural change in how consumers shop.

Investors should also consider the policy environment. The removal of business rates relief, higher national insurance contributions, and a rising minimum wage have increased operating costs for retailers. However, these pressures have also forced companies to innovate. For instance, some retailers are leveraging AI-driven inventory management and omnichannel strategies to offset footfall declines. Those that succeed in these adaptations could outperform the broader market.

Strategic Recommendations for Investors

1. Target Digital-First Retailers: Companies with strong e-commerce platforms, such as those in the food or fashion sectors, are better positioned to capitalize on the shift in consumer behavior.
2. Invest in the Used Car Transition: Firms involved in EV servicing, battery recycling, or used EV dealership networks could benefit from the sector's long-term growth.
3. Monitor Policy Changes: Keep a close eye on potential shifts in rent review mechanisms and business rate policies, which could impact retail real estate and operating margins.
4. Diversify Across Sectors: A mix of traditional and digital retailers, along with automotive sector plays, can hedge against sector-specific risks while capturing growth opportunities.

Conclusion

The UK retail and consumer sectors in 2025 are a mosaic of challenges and opportunities. While declining footfall has weighed on traditional retailers, the rise of e-commerce and the used car market's recovery offer a path forward. For contrarian investors, the key is to focus on structural trends—like the electrification of the automotive sector and the digital transformation of retail—rather than short-term volatility. The FTSE 100's resilience suggests that the market is already pricing in some of these shifts, but those who act early on the most compelling opportunities may find themselves well-positioned for the next phase of growth.