In the immediate wake of Brexit, there’s been a great deal of coverage hypothesising what the future may look like for the UK, for Europe and for retail globally. There’s one commonality: no one can really tell what the impact will be. We’re now in uncharted territory.
And yet, it is of course a huge concern for this industry – one which is bound to moving products around the world, paying for those products in many currencies and selling to customers in different geographies. As an industry we’ve embraced globalization in the last ten years. So where does this leave us?
Well, depending on your market, there’s both pros and cons of the decision.
The threats
- The risk of tariffs into and out of the UK from the EU.
- If the economy slows, there will be a fall in employment which will impact consumer spending.
- Even if employment doesn’t fall, the threat and uncertainty will weaken consumer confidence and switch to a ‘save’ mentality.
- Internationalization plans for UK retailers will be thrown into doubt.
- A China growth halt.
- Retailers that manufacture in Far East, China, Cambodia and Vietnam impacted as often they pay suppliers in USD.
- Diminished tourist spend on US luxury brands as GBP weakened.
- A potential talent drain from the UK.
- UK fashion education, world-renowned, will be less attractive (more expensive) to global applicants and could lose its esteem, which will impact the London fashion industry status.
The silver linings
- UK luxury brands could see a tourist boom due to the weakened GBP – brands need to strategize on how to capitalize that.
- Potential growth for Italian and French brands who can take European market share.
- Mobile growth will continue. Consumers will showroom and shop more globally to find best prices. Increased mobile usage means more consumer data which retailers can target specifically.
- Chinese e-tail platform, JD.com, launched their British Mall this week – ideal timing to make the most of tourist interest.
So with a week of market data now in, we’re able to assess whether the decision has had instant impact on retail. Here’s what we’re seeing.
Brexit Data
Straight off the bat, Burberry have increased their full-price sell outs by 50% in the last week year-on-year. The brand is a tourist favorite and has most of their business costs in GBP which means the increased overseas dollars they earn will buy them more pounds.
Brexit’s impact on Burberry: sell outs were up 50% in the last week Y-O-Y.
However, that’s a gem among some less pretty stones. The luxury market globally had 40% fewer full price sell outs in the last week year-on-year. Consumers are acting cautiously and retailers are not giving in just yet with discounts – June is down 7% on discounted products year-on-year.
But really, it is too early to tell the lasting impact on the industry. For starters, the potential increase in luxury tourism will have to wait for those tourists to actually book those holidays before we see major spend. And that’s dependant on the pound staying low. Meanwhile, hedging contracts will protect pricing on orders in the works, so we’re unlikely to see change there in the next 12 months. But when will H&M and Primark, with suppliers in the Far East, have to lift their prices? Is Zara in a sweet spot as they own their production?
As with any period of uncertainty, it’s the innovators and the agile who will survive best and may even profit. We’ll be watching carefully for any market shifts.
