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Retailers face Brexit reality of rising costs

The reality of an impending hike in shop prices hit home this week, as experts warned it may be the only way for retailers to offset rising costs. 

Sterling has fallen by nearly 20% against the dollar since the Brexit vote in June, leading to soaring import costs. Many businesses have hedged their currencies, but these arrangements will begin to wind down early next year.

Yet retailers are reluctant to pass on price increases to consumers, amid fierce competition for spend. BRC chairman Richard Baker has warned that shop price increases are inevitable, “probably focused in the first half of next year”.

The managing director of one high street retailer told Drapers: “We’re at the value end of the market so we’ll do everything we can to prevent putting prices up. But if we do have to, we may keep entry prices at the same level but look at the mid-to-upper tiers.”

“We won’t be looking to raise prices unless the product warrants it,” added the head of buying for one footwear multiple. “The product has to be able to take the hike, as your consumer will tell you if it doesn’t. There are three main things you can look at in terms of cost saving: your supplier base, your shipping methods and any agents you use – beyond that you can’t do a great deal.”

Fergus Patterson, UK and Ireland managing director at Gant, ruled out cuts to marketing budgets or headcount, arguing that this could cause lasting damage.

“We will have to seek to recover the hit to EBIT elsewhere, either through trading or expansion,” he added.

Simon Carter, founder of the eponymous menswear brand and retailer, said he would have to increase prices next year: “We can only absorb so much of the increased cost. We are working with our factories, who have been helpful as they can be, but we will have to raise both wholesale and retail prices after Christmas.

“We are picking up a bit more export traffic but it’s a trickle more than a deluge and it won’t offset the cost of buying in dollars.”

Simon Berwin, managing director of Leeds-based tailoring business Berwin & Berwin, agreed: “The reality is that we were selling spring 17 at $1.50/£1 and now it is $1.20/£1, which is a 15% price increase for retailers. Everyone seems to think it will be borne by suppliers, but suppliers have been sucked dry for the last three years and there is nothing left to squeeze.

“Everyone is tiptoeing round it but prices will have to go up.”

Another high street supplier warned: “We’re being pushed and we’re pushing back to our factories but there’s only so much you can do … It’ll probably put some people out of business and it’s going to be a tough six months ahead.”

A third high street supplier pointed out that they have little bargaining power with large retailers, but said there “isn’t anywhere left to cut”.

“We are in uncertain times, like-for-like sales at many of the multiples are down and customers are spending less on fashion – there’s no getting away from that,” he added. “We just need to make sure our product is right and is delivered at the right time to weather these troubled times.”

It comes as new figures from Kantar Worldpanel showed the British fashion market witnessed its steepest decline since 2009 for the year to 25 September, culminating in four months of consecutive sales decline and almost £700m lost from the value of the market from this time last year.

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