Over the past two years and nine months, since the UK voted to leave the European Union, the fashion industry has been doing what it can to prepare for an unknown future.
Today (29 March) was to be a historic day for the UK – the date we exited the EU. However, after parliament rejected prime minister Theresa May’s withdrawal agreement and voted against a no-deal exit, EU leaders offered to delay the Brexit date to either 12 April or 22 May. As Drapers went to press on Tuesday, we were awaiting the outcome of a series of Brexit votes in parliament, and business leaders were facing an extended period of uncertainty.
In the meantime, contingency planning continued. We spoke to a range of fashion and footwear businesses across the UK, including manufacturers, brands, agencies and retailers, to find out what they are doing to mitigate the Brexit risks.
Lord Wolfson, chief executive, Next
Based in: Leicester
We are ready for a no-deal Brexit – we were six months ago. The fact that Revenue and Customs has said it will give a transition period at the ports and wave through those who don’t have the right paperwork (allowing them to sort it afterwards) is very positive. Chaos at the ports was what we were most worried about, but there should be no reason for such delays now.
Despite the uncertainty wages and employment levels are increasing, there is no evidence to say that Brexit is impacting either of these. We are in no way complacent, no one can say for sure what the impact on the consumer will be. In the short term there isn’t a great deal you can do. In terms of planning the most important thing is to remain flexible and respond to changes in the market. You can’t plan for the effect on the consumer.
Andy Long, chief executive officer of Pentland Brands
Based in: London
Since the vote, we have had a team working on the implications. We distribute into the EU from our UK warehouse, but it is bonded, and we are also an authorised economic operator [which ensures streamlined international trading status]. In terms of the paperwork the government was advising businesses to get in order, we were well placed to start with.
In preparation for the worst-case scenario, a no deal, we pulled deliveries forward into the UK for spring, we also made sure our customers in Europe also had the appropriate levels of stock to better support them.
The biggest unknown is whether the borders will function. There could be delays, and clothing will be further down the pecking order – understandably, food and medicine will be prioritised. If there is a no deal, there won’t be a significant shift in our position in terms of tariffs. We wouldn’t change pricing in the short term, but in the medium to long term we are watching the implications on the value of the pound. If we leave with a deal it should strengthen, but if there is a no deal it will weaken. We hedge [currency] so we are hoping Brexit is resolved before we do another round of hedging.
The biggest challenge has been the number of variables we have had to keep in mind for the flow of trade with no real certainty. Some of the questions we had back in 2016 we have only been able to get answers for very recently [in terms of tariffs etc].
We would rather leave the EU in a structured, clear and planned fashion – that is preferable for most businesses. The delay is a frustration as we all hoped we would have known a lot more before Christmas so we could prepare, but there is more opportunity in leaving in a well-understood way.
When you’re in a situation that you could be sending trucks out next Thursday and not knowing if we will still be part of the same trading block on Friday, something has gone fundamentally wrong.
Marc Dench, chief financial officer of Joules
Based in: Market Harborough, Leicestershire
There are a couple of bigger things we have done to minimise border disruption. We are about to open a warehouse in Holland with a third-party supplier, so we can move all our product for the European market into the EU, bypassing the UK. Delivery to Europe needs to be the same quality, speed and price as it is now.
In the run-up to 29 March, where possible we took products in a few weeks earlier to get shipments out to EU customers before [Brexit]. Around 90% of seasonal product has been shipped.
We have done a lot of planning with our couriers on making sure we mitigate inbound disruption by finding alternative routes available if there are backlogs and delays. Anything that’s inbound to Dover is a significant concern. We had to prepare for a hard Brexit.
If Brexit is delayed by a couple of months, we will have to go through the whole painful process again in terms of stock management and visibility. We have three stores in the Republic of Ireland, we have to manage stock flows back and forward between them and get more stock to those stores – we would have to do that again.
Another concern is the volatility of currency rates – the uncertainty has made it difficult to plan our hedging programme. In terms of pricing it is our intention to keep our prices the same, but if there are significant and long-term changes to costs, then we would have to reflect that in our pricing.
Andy Ogden, director and general manager of mill English Fine Cottons
Based in: Manchester
We’ve been stocking more cotton, because if there’s going to be Brexit – hard, soft, whatever – which impacts UK ports and causes delays to any shipments, we feel we’re better having stock and being able to utilise it, rather than looking around for it.
We’ve increased our stock position by around 10-15% and that is a cost challenge for the business. It is tying up more capital in inventory and because cotton is a commodity that changes in price, we’re buying cotton at a time when perhaps we normally wouldn’t. We don’t have the luxury of holding off in hope of a better price and we’re having to take a less risk-adverse, pragmatic approach.
Increasing stock is one of the most tangible impacts, but we’ve also been more conservative when it comes to developing the business. There’s been one or two opportunities to move to a different supply chain or route that could be more advantageous, but we’ve decided not to, or at least hold off on doing that, because of the unknown. In a business of our size, it doesn’t make sense to change too many things at once and altering the supply chain or our partners at time when we don’t have a clear understanding of what the challenges ahead might be doesn’t make sense.
That works in two directions, because the clients who may be looking to work with UK mills and manufacturers because they want to align with the transparency and quality we can offer, are not committing. The current economic cycle of doubt means people aren’t spending on the high street and the uncertainty has slowed decision making and innovation.
Alexandra Lyles, co-founder of Claret Showroom
Based in: London
We represent 15 brands and most of those we distribute. All of our brands manufacture outside Europe, so any Brexit outcome shouldn’t affect anything to do with the production of the goods we are selling now (March) and have sold that will be delivering over the coming months, but there are other factors we have had to prepare for.
Many of our customers are based in mainland Europe, such as [German etailers] Zalando and MyTheresa, and [Parisian department store] Le Bon Marché. For those customers, we have had to secure space and services at a warehouse in Germany as a fall back (we secured this in December 2018). This will ensure those orders aren’t subject to any extra duty charges or delays if they were to come via the UK. In November and December, we briefed our brands that we may need them to split our deliveries into UK and Europe – this means we may incur extra charges, but we haven’t factored these into our pricing for autumn 19. All our goods are shipped via air so, as soon as we hear the Brexit outcome, we should be able to action these changes in time.
We sell at landed GBP prices, but pay our suppliers in US or Australian dollars. We take orders about five months before we have to pay our suppliers, so we forward-ordered USD in November 2018 and February 2019, catching decent exchange rates and built that rate into our pricing. This means our margins won’t be affected by any weakening in the pound. Of course, it also means we will miss out on any gains, but we decided there is enough risk in our industry without playing the foreign-exchange-rate game.
While I worry about how consumers will cope with likely increases to retail prices on imported products, I am excited about the prospects for fashion made in Britain. There are many newly launched as well as heritage brands that need a lot more support. Many of these brands are fully sustainable too, so their garments are a win-win purchase for consumers.
Charles Clinkard, managing director of Charles Clinkard
Based in: Middlesbrough
We have been running a Brexit no-deal contingency plan for nearly 12 months and most things that we could action have been done. For example, we have forward-bought currency through until the end of spring 20. As a precaution we also took 87% of our spring 19 stock requirement in before 29 March to try and avoid any shortages on the stock side.
In reality, the biggest issue is no one really seems to know what the implications are going to be. Last week some of our European suppliers suspended repeats and deliveries for two weeks from the Friday [22 March].
It is shocking that we are where we are. We will have to manage through as best we can and hope we get some clarity on the situation sooner rather than later.
Cécile Reinaud, founder of maternitywear retailer Seraphine
Based in: London
Our distribution is currently centralised in the UK, but 40% of our turnover is in mainland Europe. With uncertainty about trade barriers and tariffs, and potential delays at the ports, we’ve looked at de-centralising our distribution centre and opening one in Europe, in France or Belgium. We’ve done a complete study, and we’re ready to press the button if we need to. We’ve not taken action yet because it would incur a signficant start-up cost – about €250,000 (£214,282) – so I didn’t want to make that call unless necessary.
Tariffs could change our profitability model, and in fashion margins are so thin. We’re hoping we don’t have to change prices, and we haven’t at the moment. There isn’t price elasticity with consumers in Europe, so we will resist as much as we can.
We source mostly outside the EU, in Turkey and China. A little bit comes from Portugal, not much. We’ve put in place a plan if necessary where we could relocate the production in Portugal to other countries.
In the last two years, we have opened two stores in Paris. We had planned to open a third, but because of Brexit we have halted that plan. It is definitely slowing down our bricks-and-mortar expansion in Europe.
Fergus Patterson, managing director of Swedish brand Gant
UK head office based in: London
Preparing for what you don’t know is going to happen is really difficult. You simply cannot prepare for a soft, hard and no-deal Brexit.
We have extended our currency hedging in order to protect ourselves from any decline in the pound. We’ve also increased our stock position on some continuity lines that are not seasonal.
Our stock comes from our UK warehouse and we ship to EU destinations. If there is a no-deal Brexit and there are tariffs, we would move the distribution to Germany. We’ve already identified a location, so we would be able to move very quickly.
We have also done lots of communicating with employees to make sure they know how to register for UK citizen status in the event of leaving the EU. We wanted to make it easy for the employees, and ensure they know how to contact our HR department.
Brexit does worry me. I’m very pro-remain and since the referendum we’ve seen a 20% reduction in value of currency. The footfall data indicates consumer confidence is at a very low point. February was a shocking month for high street retail and I’m not confident that it will improve in coming months.
Donald Finlay, managing director of men’s and children’s wear brand house Douglas & Grahame
Based in: Carrickfergus, Northern Ireland
Brexit doesn’t suit a business like ours, which imports 90% of product and exports around 45%. We had to start working on our Brexit planning early. Last autumn we started the process to become a customs-accredited warehouse. It is nearing completion now. That will allow us to manage imports and exports, VAT and duty in a more efficient way.
On top of that, because the Republic of Ireland is such an important market for us, we are opening a warehouse in Dundalk or Dublin. It will allow us to operate within the Republic more efficiently.
We have also looked at the additional costs that may apply if there is a no-deal and WTO tariffs apply. We will absorb any risk and maintain our prices for the rest of 2019, irrespective of what happens or doesn’t happen on 29 March. Customer sentiment is a concern and they are nervous so by keeping our prices the same we are hoping to ease that.
We are talking to our suppliers to see if they can help [to recoup some of the potential cost of tariffs]. There has been a mixed reaction as the majority see this as an issue we have caused ourselves, but it is an ongoing conversation.
If we get an extension on Brexit until the end of June it will hopefully allow for more clarity [before we leave] and give more time to prepare. It is mind blowing how much still needs to be dealt with across the country and there’s no time to do it. Things like driving and insuring vehicles going across the border, reappointing members of staff and training them to manage export documentation – it is a significant demand on resources.
We traded with the south [of Ireland] before the EU came into play and went through the daily customs checks. We wouldn’t invite it again but that is out of our control. We just want to know what will happen and we will deal with it.
Mike Branney, managing director and co-founder of fast fashion etailer Oh Polly
Based in: Glasgow
For us, the concern is around recruitment in the long term – particularly in certain skills shortage areas such as web development. We’ve recruited three European web developers over the last year alone because there just aren’t enough of them in the UK. I don’t know how easy it will be to get them visas to work in the UK.
There’s also a massive issue surrounding logistics. It’s still really unclear how smoothly goods will be flowing in and out come the end of the month. We’ve been assured by partners such as DHL that there will be no issues. They have put in additional capacity and they’re only going to be prioritising their existing customers, they’re not taking on any new customers. So, if the ports get blockades or anything, we should still be all right.
We don’t have any suppliers in the EU and we’re not reliant on the EU as a marketplace, they’re a very small percentage of our exports – so on that front it won’t really impact upon us. If anything, being vertical and largely operating away from the EU gives us an advantage when the exchange rates fluctuate. It gives us a good advantage because we buy everything in US dollars.
Looking ahead, a good trade deal with the US would be good for us because that’s a massive growth market and one of our targets for the next three years. Any agreement that we could get there in terms of tariff-free trade would be great.
Ray Clacher, executive vice-president of Trinity (which owns brands including Kent & Curwen and Gieves & Hawkes)
Based in: London
Every quarter we have a Brexit meeting. We look at potential tariffs, how we trade with certain countries, the what ifs. We have looked at every vendor, every supplier. Where do all the component parts of the product come from? Our brands are high end, so we use a high percentage of Italian cloth. We’ve tried to work out what effect it would have if Brexit didn’t happen, or we crashed out [without a deal]. We have looked at our current stockholdings, our commitment to those cloth mills. Nothing has necessarily changed, but we know what we’re exposed to.
We’re also looking at countries on the edge of the EU. Turkey is a big one – we make a lot of shirts and casualwear there. There’s a lot of concern, as that could be extremely exposed. We’ve had a look at that, and at potentially counter-sourcing. If we couldn’t trade with Turkey, could we do similar product at the same price elsewhere?
Generally speaking, other than having a plan B, we haven’t done anything. We’re not intending to change our pricing. We buy in sterling and the pound to euro rate has been steady at €1.13-€1.17 all year. We’ve taken the stance not to hedge. If Theresa May gets her way, the pound could fly, in which case we’ll bank that profit.
Juls Dawson, director, sales of marketing and branding agency Just a Group
Based in: London
I don’t think anyone really knows what the impact of Brexit will be, either short or long term – whether that be backlogs at ports, changes in agency law or new tariffs and duties that may hinder cross-border trade.
Undoubtedly there will be repercussions and changes to the way we work every day, and I hear of many companies making the best preparation they can, whether that be stopping international buying trips or stockpiling products or components. But for us, however naive it may sound, we will wait to see what happens. We truly hope all the concerns regarding a logistical Armageddon hampering our day-to-day trade is another “millennium bug” episode and we will all look back with a sigh of relief.
Stavros Karelis, founder of independent retailer Machine-A
From my perspective, the first main issue is currency, as we are buying so much product from international brands in euros and other currencies.
We have had to hedge currencies for the first time. If sterling hits a big low, that could really affect the business and the buy.
The second issue is what is happening with stock movement and deliveries. When are the products arriving and what will the import duties be? How will this affect the pricing, the cost of products and the price we sell for? Some businesses can move or switch between different warehouses, but we are not big enough for that.
What we have done is tried to move deliveries, to get everything here before the possible tariffs come in.
There is also the issue of if the goods are going to be stuck. The worst-case scenario is if the products won’t be able to come into the UK or get held up. That, plus tariff duties will have a big effect.
It will affect the pricing of the products. If the brands have to change the prices on everything, we will have to change our all pricing, which is already part of our budget and imputed in all our system.
The problem is that it’s all based on assumption at the moment, and that is creating the most uncertainty. No one feels secure because know one knows. There is no clear message. This is the worst thing, because from currency to deliveries to the mood of the customer, it’s all relating to an assumption that no one knows.
There other worry is visas, and whether staff are OK to stay and live and work in the UK. Our staff are very international, including me.
Victoria Prew, co-founder of womenswear rental start-up Hurr Collective
Based in: London
From our perspective, the biggest immediate impact comes on our workforce. As a start-up, we work with freelancers from across the world, so when there is uncertainty and the value of the pound fluctuates against the dollar, it can dramatically affect our costs, especially as a small business.
As we started the business, we hedged our bets as we don’t know what will happen next, so we are building a UK-focused company. Everything is handled in the UK and everything operates exclusively in the UK at the moment. That means we don’t face too many immediate issues.
However, expansion to Europe, the US and all sorts of other countries is on our roadmap for the future, and how that happens will partly depend on the outcome of Brexit discussions.
In the short term we are quite safe, but as we look to expand down the line, we want to be an international business so free and easy trade with Europe, as well as elsewhere, would be the ideal situation.
Jo Davies, founder of independent retailer Black White Denim
Based in: Cheshire
My stance has been that until we know precisely what is going to happen, it’s business as usual.
Our revenue is increasing and as such, so are our budgets. Most of what we buy is in sterling though we do have to buy some stock in dollars and euros. We factor this in when buying and keep our fingers crossed that the exchange rate is neutral or works in our favour.
We have just added a new part-time member of staff to our team to help with the digital side or our business as this, as well as in-store, is driving growth.
Hugo Adams, CEO of childrenswear brand Frugi
Based in: Cornwall
The difficulty is knowing whether it’s going to impact us or not, because there are so many different options and possibilities. What we’ve tried to do is plan for the stuff that’s in our control. It all takes time and effort, and it’s a distraction from trying to grow the business.
We’ve moved orders forward to try to avoid things coming through over this period. It has cost us some money – not a lot of money – but at least our goods aren’t perishable and they’re not that time sensitive. We don’t want to let our wholesale stockists down, so that is a key concern of ours.
The second thing was about getting ready for any extra administrative burdens – making sure that we’ve got the resources or the potential resources to cope with a lot more bureaucracy and paperwork that is required with importing and exporting.
Then the last thing is the long-term contingency to have some sort of distribution centre or presence in Europe. At the moment, we don’t have any employees [based] outside the UK. Our second-biggest market is Germany, so we’ve got potential third-party options for warehousing there if we need it.
Samantha Frost, co-founder of womenswear etailer Pretty Lavish
Based in: Hertford, Hertfordshire
The biggest impact from Brexit for us is around getting products through customs from suppliers in the Far East. Even now, there is so much uncertainty still on what will happen.
As a result of this, we are trying to work with longer lead times – we are developing our designs further ahead at the moment to prepare for the likelihood that things might get stuck in customs.
We have a knitwear factory in the UK and the rest of our manufacturers are in the Far East, so we don’t actually import anything from the EU itself. But there is so much uncertainty around how things will end up, that we are preparing ourselves by working on products further in advance – that’s all we can do at the moment, really.