Retailers and suppliers have said price rises are likely in the event of a no-deal Brexit, as uncertainty about the UK’s trading relationships with the European Union and the rest of the world continued this week.
With just over four weeks until the UK is due to leave the EU on 29 March, Theresa May yesterday delayed a second “meaningful vote” on her Brexit deal until 12 March, and today opened up the possibility that parliament could reject a no-deal Brexit or delay the UK’s departure date until June.
The events at Westminster brought no clarity for British businesses. If no deal is struck with the EU, UK companies will be forced into World Trade Organization (WTO) terms, which will put upward cost pressures on retailers, brands and suppliers.
“The impact of a no-deal Brexit would clearly be significant,” the chief executive of one retail group said. “Tariffs alone represent about 4% of sales for an average womenswear retailer. We would need to take a view at the point of impact, but I would expect most retailers to increase pricing to mitigate this.”
The managing director of one UK footwear multiple said: “If we see tariffs increasing overall costs by more than say 3%, perhaps to 10%, then we could expect retailers to pay half [and suppliers to pay half]. “However, if it is a sustained increase in costs, then it will have to ripple through into retail prices.
“Retailers and suppliers will have to absorb the costs in the short term, but in the long term, it is going to affect consumers.”
Fashion retailers face the additional burden of the 4.9% rise in the living wage to £8.21/hour and a £186m increase in business rates – both of which come into effect in April.
William Bain, Europe and international policy adviser at the British Retail Consortium, told Drapers: “In a no-deal scenario, the combination of increased tariffs, the burden of non-tariff barriers, and likely depreciation of the pound means retailers will face upwards cost pressures. Given the fierce competition and tight margins in retail, it is likely that some of these price rises will be passed on to consumers.”
William Church, joint managing director of Joseph Cheaney & Sons, said price rises would be “inevitable” if there were no deal: “The imposition of tariffs on raw material imports and footwear exports to and from the EU will create the perfect storm. We would not be able to absorb these extra costs and would, like most other businesses, have to pass these on to our customers.”
Suppliers, meanwhile, believe they will bear the brunt of any new tariffs.
“Retailers will not increase their prices,” one womenswear supplier said. “We will have to just swallow the costs, whether we can afford to or not.”
Another womenswear supplier agreed: “The pressure would be on us to reduce our prices in order to alleviate the increased costs our customer in Europe is going to have. There is no way that we will have the margins to do that. A lot of people will replace us with suppliers within the European Union.”
Jenny Holloway, chief executive of north London factory Fashion Enter, said: “We as the manufacturer have to become as lean as possible to keep our costs down. But the retailer knows exactly what is going on, too, so there has to be some movement in prices.”
A Department for International Trade spokesman told Drapers: “No final decision has been taken on our applied tariffs after we leave the European Union. We will need to balance a number of considerations to avoid potential prices rises for consumers, and manage the impact on producers that rely heavily on supply chains, as well as those who are currently protected from global competition by import tariffs.”
- What will your business do if tariffs are introduced after Brexit? Email us