brexit and british retail

Brexit and the impact on British retail

The nation, which includes many that work in retail or own retail businesses, has voted to leave the European Union.

The consequences of Brexit and British retail are only just apparent, some predicted, some not. We will not really know the extent of its impact for at least another two years, subject to Article 50 being set in motion.

The British economy was just getting back on track after years of recession that claimed many businesses. Now fresh threats are jeopardising livelihoods within our retail industry. A volatile stock exchange and currency market makes imports expensive. Retail prices have been in deflation and while this could mean that we will see inflation return to prices as retailers are forced to pass on cost price increases to its customers, the risk that customers will seek bargains elsewhere is very real. The suggestion that margins will improve in this market though, feels misguided.

Small retailers are most vulnerable. Cash in shorter supply to weather the storms ahead could mean the banks become leaner with loans and overdrafts; it could also mean customers reigning in their spend. Negotiating power is weaker when potential smaller volumes are on the table. Competition is more polarised from those that do have the cash and the power. This is not a time to resign to fate however. This is a time to remind customers of the value that small retailers offer: expertise, customer service, shopping experience, and being fleet of foot on the offer.

We have read quotes from retail leaders, notably B&M boss Simon Arora, who said “The whole of UK retail will see some pressure on imported goods but it’s a level playing field so it doesn’t change the fundamentals of our business.” This is simply not the case. Cash poor retail businesses sourcing in dollars, those that haven’t hedged against currency fluctuations, those that were already in a position of competitive weakness will be hit first and hardest by Brexit.

The impact is not only on UK sales. Ocado has just released its half year trading update. We have been expecting an announcement on an overseas partnership for some time and while Steiner says it is progressing, it is clearly now progressing at a slower pace than it was. Ocado’s share price was rocked when Amazon Fresh launched in London recently and a heavily impacted market is not going to support a share price recovery in the short term making any deal less attractive.

For retail in the UK, the priorities must be cash management, margin preservation and productivity improvements. If there are any chinks in the strategic armour, now is the time to address them in preparation for tougher trading. If there are any quick wins, now seems a good time to take them.

Investing in your future may feel counter-intuitive right now, but that is exactly what retail should be doing, building for the long term. The landscape is changing and the best defence is offence.

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