On 23 June 2016 the nation went to the polls to determine the UK’s future in the European Union with very few predicting the outcome and the impact it would have over the next 12 months. A year on Drapers examines the effects of Brexit on fashion retail so far.
Drop in the value of the pound
For the UK fashion industry, the drop in the value of sterling became one of the most immediate and troubling consequences of the Brexit vote. When the result of the June 23 vote was announced, the value of sterling fell by 11%, slumping to a 31-year low against the dollar of $1.32. It fell further to $1.27 immediately after the general election earlier this month. Retailers were reluctant to raise prices to offset the pound’s plunge in a market where consumers often already want to pay as little as possible for their clothes, leading to fraught conversations with suppliers, as detailed by Berwin & Berwin managing director Simon Berwin.
Since the vote, several large retailers, including Shoe Zone and Clarks, have blamed the weak pound for a slip in profits. Clarks boss Mike Shearwood said Brexit, along with cost pressures caused by weakened sterling, would continue to have an impact on profitability and cashflow. For others, the weakened pound has provided a welcome boost to business as international shoppers flock to the UK looking for a bargain. Harrods director of distribution Simon Finch told the recent Drapers Operations Forum that the drop in sterling had yielded “fantastic” results for the luxury department store.
Increase in prices
Although reluctant to increase prices because of the weakened pound, many retailers and brands had to bite the bullet. At the start of this year, Next warned shoppers they could face price increases of up to 5% and luxury women’s brand Karen Millen also said it would up the prices of some mid-range products (rather than entry or exit points) by 5%. Several brands told Drapers they were managing the currency fluctuations by only increasing seasonal products or new designs, rather than core lines. One founder said that pricing for autumn 17, a process that usually lasted a couple of days, had taken three weeks. And as consumes have been squeezed from all directions by rising prices, many are tightening their belts.
Opportunity for UK brands and retailers abroad
It is not all doom and gloom, however. Following the drop in the value of sterling, UK brands have found themselves in a position to take advantage of the growing interest from overseas markets. International buyers from Japan and the Middle East in particular have upped orders with UK brands as the cost to them dropped with the pound. Equally, UK retailers with a strong international online presence have benefited from Brexit as the weakness of sterling makes British firms more attractive in the global market. Etailers such as Asos, Boohoo and Missguided have attracted waves of customers from around the world on the back of now-lower prices.
Slowdown in consumer confidence
Since the Brexit vote, consumer confidence has taken a tumble. Directly after the vote, in July 2016, the Gfk index reported that consumer confidence had hit a 26-year low. With continuing political uncertainty after the snap election this year, and blurry visions of what the government will actually achieve in negotiations, as well as global political instability and an increased terror threat, retailers could face a rocky time ahead as consumers look to tighten their purse strings.
Agility in supply chains needed
With the uncertainties ahead, building an agile supply chain in preparation for the future is essential for those trading across borders, whether this is through investment in technology or through introducing European-based distribution centres to negate the potential impacts of the post-Brexit trading landscape.
“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,” commented Erica Vilkauls, CEO at East. “Now could be the time to invest in smart supply chain technology.”
Under plans announced this week by May, the UK wants to give all EU citizens the right to stay after the UK’s exit - due on 30 March 2019 - and will grant those living in the UK for at the least five years the same rights to welfare, pensions and education as UK citizens. Some EU leaders have described it as a “good start” but have called for more detail.
Protecting intellectual property and design rights emerged as one of the fashion industry’s top concerns in Drapers Brexit Agenda, alongside ensuring the free movement of people, maintaining education funding and securing favourable trade agreements. While Britain is a member of the EU, fashion businesses can register an EU trademark that protects them in 28 countries. That will cease to apply once the country exits. In May, it emerged that nearly half of international brand owners do not have a clearly defined trademark strategy for when Britain exits and were unsure about which course of action to take.
Free trade is a priority
In the run-up to the start of the Brexit negotiations, one subject on which retailers and the government were united is on the importance of maintaining some kind of free trade agreement.
The Brexit white paper, released in February, laid out 12 principles for leaving the EU, among which were “ensuring free trade with European markets” and “securing new trade agreements with other countries”. It stated: “We will be champions of free trade, driving forward liberalisation bilaterally, as well as in wider groupings, and we will continue to support the international rules-based system.”
Numerous senior figures in the retail industry have also stressed the importance of free trade. Helen Dickinson, chief executive of the British Retail Consortium, described securing a positive new customs arrangement as “crucial” to ensuring shoppers did not face unwanted import tariffs. The British Footwear Association (BFA) compiled its own white paper on the Brexit negotiations, which set maintaining free trade agreements as a “vital” priority.
“The UK must look to work with the EU and to avoid the imposition of barriers which may limit EU/UK trade,” said John Saunders, BFA chief executive.
Call for clarity
The industry’s priorities are stability, clarity on Brexit and economic certainty. As Ray Kelvin, Ted Baker founder and chief executive, put it: “We need decisive strategies that are exercised and delivered well. I stick to what I do and I do it right, and I want the government to do the same.”
Now Brexit negotiations have kicked off, retailers and trade bodies are calling for the fashion industry’s priorities and concerns to be heard by the government.
Brexit – however it is going to look – is a while away yet, but given the uncertainty it has already caused, the fashion industry is hoping for a calmer retail environment as the vital details are ironed out. The hope is that trade talks with European and global markets will run smoothly, the pound will continue to fight back and retailers – both British and international – will continue to invest in the UK.