Ahead of Drapers Operations Forum on Thursday, retailers tell us how they are preparing for the operational challenges posed by Brexit.
“If we don’t get the negotiation right, your economic security and prosperity will be put at risk,” Theresa May thundered from the steps of Downing Street last month. The prime minister may have been appealing to undecided voters ahead of this week’s election, but her words have a particular resonance for the UK’s fashion industry.
Almost a year on from the Brexit vote, retailers are all too aware how important the upcoming negotiations will be. Operations are the backbone of any good business, but with question marks hanging over tariffs, trade and the rights of international staff, building and maintaining a successful operations strategy is not easy.
The biggest uncertainty is that we don’t know what the challenges are going to be
Daniel Rubin, Dune founder and executive chairman
Leaving the European Union poses a range of short- and long-term operational challenges – retailers are already grappling with fluctuating exchange rates and their impact on global supply chains. But with so much yet to be decided, for many it is a case of ‘wait and see’ before making any drastic changes.
“The biggest uncertainty is that we don’t know what the challenges are going to be,” explains Dune founder and executive chairman Daniel Rubin. “There could be potentially huge changes to border controls and tariffs would create significant operational challenges.
“But until those things happen, it’s difficult for us to anticipate the outcome. You don’t want to make a whole lot of decisions that might not be relevant down the line.”
Others are concerned about the UK’s ability to trade with the rest of the world and the country’s bargaining power outside the collective might of the EU.
“We can’t be a small market of 60 million people – we need scale,” argues Simon Berwin, managing director of suit manufacturer Berwin & Berwin. “We’ve been waiting on clarity on duty in Vietnam for years. Just as that’s been sorted out with Europe, we’ll have to renegotiate everything as one country – and as one country, you don’t get the benefits of scale.”
But despite the uncertainty, there are some steps the fashion industry is taking to mitigate the operational challenges ahead. Paul Alger, director of international business at the UK Fashion and Textile Association (UKFT), argues that, although export partners do not want to walk away from British brands, the industry must soothe any pre-Brexit jitters.
Buyers looking at UK brands even now will want certainty on supply and price
Paul Alger, director of international business at the UK Fashion and Textile Association
“The potential damage for UK brands wanting to trade in the EU could hit even before we leave. The exchange rate is already an area of uncertainty for the EU customer, so I would advise companies to consider pricing in euros.
“They may also wish to consider supporting customers with any duties imposed when the UK leaves the single market and customs area, as looks likely. Buyers looking at UK brands even now will want certainty on supply and price, so whether that’s offering to bear or share the burden of any duties, invoicing in euros, EU-landed shipments or offering lower prices for an introductory period, our companies need to do everything they can to reduce the uncertainty around British goods and brands in the run-up to Brexit.”
Alger also urges companies to reach out to “Brexit-proof” markets, such as the US, Japan and Korea.
Retailers can use the current period of uncertainty to look carefully at their supply chains, invest in technologies and control costs, argues East CEO Erica Vilkauls.
“Increases to sourcing costs are inevitable, so retailers should be looking at all of their supply arrangements. Are supplier contracts fixed term or order by order? Do the contracts include pricing increase mechanisms linked to currency fluctuations or increased costs? Retailers also need to check early termination and force majeure clauses to see whether their suppliers may be able to use currency fluctuations as a means to exit potentially uneconomical long-term arrangements.
Increases to sourcing costs are inevitable, so retailers should be looking at all of their supply arrangements
Erica Vilkauls, East
“It may become more costly to move goods in and out of the UK. Retailers should check their supply chains are flexible enough to adapt to the changing environment – now could be the time to invest in smart supply chain technology.”
The ease and expense of moving goods in and out of the UK is another of the key operational challenges the retail industry faces post-Brexit.
“If there’s a hard Brexit and we end up outside of the EU with no deal, retailers who have stores within the EU that they replenish from the UK will have a big problem,” explains Paul Boland, head of freight at logistics company Torque.
“We’re advising customers to look at bonded warehouses. One of the biggest concerns has also got to be customs at Dover and Calais and how much that could be slowed down. Before the free market, there were hundreds of small offices doing custom clearances. All that infrastructure has gone.”
Onwards and outwards
But despite the potential operational minefield ahead, retailers have not been deterred from expanding internationally.
“On the contrary: we’re looking to accelerate our international business,” says Rubin. “The UK is going to be more difficult, although I don’t think it’s as tough as some of the doomsters predicted. It will be a challenging environment – partly because of uncertainty and partly because of inflation caused by the fall in sterling. We’ll be taking advantage of international opportunities.”
By getting a foothold now, we’ll be in a better position to continue trading in Europe when Brexit happens
Naser Matloubi, Arc Minute
And it is not just established businesses such as Dune that are refusing to halt expansion overseas. Smaller and newer brands are still looking to Europe for opportunities and growth.
“It’s harder to break into the UK as an emerging brand, so our focus is growing into countries like Germany, France and Austria,” explains Naser Matloubi, operations director of new contemporary menswear brand Arc Minute.
“Because of impending Brexit in the next 18 months, it makes sense to grow into those markets now, while it’s still easy. By getting a foothold now, we’ll be in a better position to continue trading in Europe when Brexit happens.”
There is a still a long way to go before retailers have a clear view on exactly what Brexit will mean for their businesses and operations. Britain is not scheduled to stop being a member of the EU until the end of March 2019 and, even then, a deal may not be in place. Uncertainty does not seem to be going away any time soon, so retailers must ensure their operations are in the best shape to tackle the challenges ahead.
Drapers Operations Forum will take place on the 8 June at The Bloomsbury Hotel in London