The second Brexit deadline has come and gone and there are no concrete plans for the next stage of the process. How is the UK fashion retail industry coping with the effect of prolonged uncertainty on business?
Despite prime minister Boris Johnson’s insistence that Brexit was “do or die” by 31 October, the nation is preparing for another delay on the date the UK exits the European Union.
Last week, MPs passed the Withdrawal Agreement Bill but rejected the government’s proposed timetable for passing the bill through parliament in order to leave the EU by the end of October. The Council of the European Union is now likely to grant a further extension – although it is not yet known how long for – to avoid a no-deal Brexit.
Drapers spoke to a range of fashion businesses across the UK, including manufacturers, brands, agencies and retailers, to find out what impact a delay may have on them and what they are doing to mitigate the risks.
David Gallimore, managing director, textile mill John Foster
It is still a case of wait and see. There’s been a lot of discussion about how to prepare your business but, in fact, there is very little a textile manufacturer can do to waterproof the business. We could perhaps order yarns in advance on the understanding there will be some strangulation at the ports, but we work to such tight deadlines that bringing yarns in early and dispatching orders early is almost impossible.
We haven’t seen a drop-off in orders from our European customers and, in many respects, it has been business as usual with them. I strongly disagree with the view that Brexit will mean UK business goes out and trades with new markets. We have an active sales team and are already trading with our prospective customers. We can’t replace Europe as a key part of our business and any potential duties would cause us a big problems when dealing with French and Italian fashion houses.
Julian Dunkerton, CEO, Superdry
I’m the biggest single donor to the People’s Vote [campaign for a second referendum], so it wouldn’t be surprising that I believe that pushing forward a Brexit option to the public for a confirmatory vote is the only way to go forward.
At Superdry, we are very prepared [for Brexit]. We are very fortunate we have warehouses across Europe. We couldn’t have expanded and created the great success that Superdry has if it hadn’t been for the EU.
The only answer for this country to get any clarity of the future is to come back with a second referendum. People are so fed up with it. They want an end to it. We all want an end but the only certainty that you will ever have is the revoking of article 50.
The more vocal CEOs and business owners can be about the realities, [the better] they can be the overwhelming voice of reason.
Dame Margaret Barbour, chairman, Barbour
I think it was absolutely right to ask for a delay on the vote. How could you possibly decide on a massive, 110-page document by the end of October?
Brexit is going to be really difficult for us because we export. We just don’t know what tariffs and customs we’re in for.
We have yet to see what will happen. However, we have made preparations. I can’t reveal exactly what, but they are very sound investments and preparations to counteract the problem. We have had to invest money in order to do this.
Steve Cochrane, owner of menswear independent Psyche, Middlesbrough
Delaying Brexit is as bad as a no-deal. It’s simply prolonging the agony that retailers, consumers – everyone – has already been subjected to for long enough. It’s a perpetual pain.
Brexit continues to have a massive effect on consumer confidence, which is subduing spending and undermining the UK economy as a whole. There is so much pent-up spend and investment that just isn’t happening because of it.
At Psyche, we have had to hold back investment as we don’t know what is going to happen. We were planning on extending our roof because we need the extra space, but it was a £120,000 development cost that we can’t risk right now.
I was devastated when [the UK] voted to leave, but we need to accept democracy and go with what the people want – we just need to make a decision and get [Brexit] done with.
Whether a delay is better than a no-deal remains to be seen, but I personally can’t imagine anything worse than no deal. Nobody knows what will happen and there are massively opened-ended questions that I don’t think anyone has the answers to.
In the long term, I hope the UK will come out of Brexit more competitive and not constrained by the EU, but we are ultimately headed into unknown territory.
Mark Hickling, director of Mark Alexander Agency
Brexit has had a massive impact on trade ever since [the UK] voted to come out of the EU three years ago. It is an on-going question and any delay – no matter how long – will only continue that.
In an ideal world, I’d like a deal, not least because everyone would know where they stood and could move on. It is the uncertainty that we are continually faced with that is most jarring, especially for businesses. At least if we had trade agreements then we would have some clarity and could plan accordingly.
As it is, we face yet another delay. How many more months of uncertainty are we going to have to endure? Neither retailers nor consumers know what is happening or, as a result, how to spend their money. Complications such as tariffs and border trading are affecting business spend, while subdued confidence is impacting consumer spend.
The government needs to make a decision so that everyone can move on. At this point, nobody cares who is running the country. We just want to know what is happening.
Kate Halfpenny, founder and designer at bridal and occasionwear designer Halfpenny London
It’s tragic really. Our materials come from the EU so, if we leave without a deal, there could be an impact on margins and prices. However, we have been planning around that possibility.
Brexit just needs to happen now. We need to get on with things and know what the situation is. It has been three years and still we know nothing. It is heart-breaking that we will have to tell our customers that we’re no longer part of Europe, but, as it stands, we have a really strong and growing business in the European markets.
Katie Cary, owner of footwear brand Rogue Matilda
It’s a tricky one because you don’t know what will happen until it happens. The big retailers are worrying the most about it. John Lewis and similar businesses have been pulling back on orders for next season, which is likely down to concerns around the uncertainty – but as a small brand we can be so much more flexible. I can react to what’s happening.
I am worried about margins being impacted. I’ve tried so hard to get a really competitive price for online, because you sell a lot better around £150 online than you do £200. I have already tightened margins as much as I could. If you then have an import tax or the Euro conversion rate sinks, then it will really impact my margin.
I’d rather we just get on with whatever we’re doing now and I think most people feel the same. I don’t think it’s helping anything with the uncertainty. We just need to get on with it.
Simon Poole, managing director, menswear retailer and brand Luke 1977
We all need to get it resolved one way or another. Any negotiation with a gun to your head isn’t a good negotiation. The closer we get and the more deadlines, the more compromises the Conservative Party are prepared to make on behalf of the population.
This is a worse deal, and as far as British manufacturing is concerned, it’s going to be disastrous. The 25% US tariff is a flag straight away to say on our own we are not as strong.
The government is not going to drop all those tariffs overnight. There will be another two or three years of uncertainty about where the natural tariffs lie. I will be losing money because of the 12% duty on imports. The impact of that is short term because the following season we will be buyingy directly but we’ll reduce our collection.
To prepare we started to reassess our sourcing. We’ve had to buy bigger volumes and sit on the product for longer, so stock holdings have increased over the last three years but that enables us to retain our margins. If we’d stayed with the same orders from our factories in China, our margin would have shrunk.
With core items we are buying treble the volume and are sitting on that longer. What it’s meant is we are maintaining our price architecture in our core styles without compromising on quality. We’ve had to trim our ranges back. A lot of even the bigger brands are bringing it back and tightening.
Colin Saunders, chief executive, vintage marketplace Open for Vintage
Like everyone else, we’re planning the best we can. There’s uncertainty about what will happen but taking the ostrich approach is not the best way.
We sell on behalf of independent boutiques around the world in 13 different markets. One of the things we’re doing is working with DHL to include customs charges in the purchase price, because we know that’s a real barrier to customers who might want to buy a designer bag coming from one of the boutiques we were work with somewhere like Tokyo. It also means that if there is a hard Brexit, we can almost immediately adjust our pricing within the European Union and make sure our shoppers don’t end up with a nasty customs fee.
Customers are nervous. Brexit uncertainty is hurting retail and causing shoppers not to want to go shopping. We’ve noticed that trade has been a little quiet over the past few weeks. You need to make customers feel more comfortable and communicate with them as much as possible about what we as retailers are doing to make their experience smooth, even if the circumstances are difficult. The simplest way to approach it is to think about what the customer experience will look like, Brexit or no Brexit.
View from the industry bodies
Lucy Reece-Raybould, CEO, British Footwear Association
There is no longer an ideal outcome from the Brexit impasse. Most business leaders believed that remaining in the EU was the best outcome before the vote three years ago, and from my interactions this seems to remain most business leaders view today. For the British footwear industry, the EU is our biggest export market by a huge margin and therefore any disruption is bad news.
It is causing considerable damage to the British economy through a dampening of consumer confidence, spending and demand with the knock-on effect of weakening business confidence to invest. A further challenge for business is coming from the consequent weaker currency, which will increase the cost of imported raw materials and products. There is also concern over the damage to the reputation of Brand UK in overseas markets.
For our manufacturing members, there is concern around the supply of skilled staff, as EU nationals’ confidence to remain is being impacted by the current uncertainty for their future position here in the UK.
The priorities for our politicians should be to unite the nation and rebuild consumer confidence. However, there are always opportunities at moments of great change and volatility, and the most agile businesses and most loved brands will continue to prosper despite very challenging economic and trading conditions.
Adam Mansell, CEO, UKFT
The withdrawal agreement’s terms are the same as Theresa May’s deal but with the added complications that no one really understands what’s happening with trade with Northern Ireland.
With that exception, the deal itself is OK. In simplistic terms, it means nothing will change up to December 2020, leaving us trading exactly as we do now. All the difficulties around a no-deal Brexit would be postponed.
Although we would welcome a period of certainty, we’re incredibly concerned as it does nothing to sort out a free trade agreement between the UK and EU. We’ve got now 13 months until December 2020 and the quickest trade deal that the EU has ever done is around five years. So, the idea that we could agree a deep and meaningful trade agreement in a very short space of time seems pretty unachievable.
The EU is our industry’s largest market by a huge percentage, accounting for 76% of the total value of fashion and textile exports in 2018. We would need to get a free trade deal agreement with the EU and UK that meant there were no tariffs or quotas and as frictionless A border as possible, with minimal paperwork.
The short-term damage is already happening. It has been for a couple of years. EU companies are very reluctant to place orders in the UK. Long-term damage could be significant in terms of the disruption it will cause to our major trading bloc.
If we can get a free trade deal with the US and China that might allow us to grow our markets in the new countries. However, [concerning the US tariffs] it is very disappointing that the US has already taken that sort of approach.
Andrew Opie, food and sustainability policy director, British Retail Consortium
The problem for retailers is that a no-deal Brexit, although less of a possibility, is still not absolutely off the table, which means everyone has to continue preparing for one. Our parliament needs to get some certainty about the deal going through and when it is going to happen so that retailers can start planning. Currently, industry investment is being held up and resources are being moved away from what retailers do best in order to support Brexit planning.
It’s that lack of clarity and firm position of where we’re going is the concern at this stage.
Getting a deal is always going to better than a no deal, and a delay – with good reason – is the best thing to do. Avoiding a no-deal Brexit is absolutely the priority and getting a deal that works with a long enough transition period.
Brexit is an added complication on top of the short-term retail pressures, diverting resources away from what retailers need to focus on: consumers and competition. Retailers are already facing massive structural changes and we haven’t yet had positive confirmation from government in terms of their approach to reforming business rates and business taxation.
Brexit is important, but the government can’t ignore the underlying symptoms that are already affecting retailers. You’ve got to sort those out in parallel with [Brexit]. In the medium-to-long term, there is the opportunity for new trade deals with countries such as China and India that would particularly impact some of the clothing retailers who import more outside of Europe. However, if you want us to see the opportunities of these future trade deals the government needs to make sure there is still a healthy retail scene here for when that comes.