The retail industry is now looking increasingly fragile after Brexit with several issues such as the falling pound and growing uncertainties over migration. The early data after the referendum points to choppy waters ahead.
Figures from the influential Confederation of British Industry (CBI) disclosed that in July, sales had fallen to their lowest level in four years, with their sales index falling to minus 14 from +4 in June.
Retailers were also found to have reduced orders with their suppliers by the largest margin since the aftermath of the 2008 financial crash.
In response, John Munro, a spokesperson for the British Rail Consortium (BRC), said, “Our own retail sales monitor shows that sales have been increasing albeit marginally. It is far too early yet to judge the impact of leaving the EU. All sorts of things are happening in the economy. Retail is part of a wider economic confidence issue.
“The biggest risks in the medium to long term is the cost of moving goods to and from the EU. For example, customs costs. This places pressure on retailer margins which are already low. We don’t know if that will transpire. It depends on the deal that we achieve from leaving the EU.
“At the moment, the EU is tariff free. That is one of the core benefits. There are all sorts of other benefits we wish to see replicated. The single market is positive for retailers. How the government negotiates terms over the single market is up to them. We want trade barriers and costs as low as possible.”
The BRC see a bright future for retail, as Brexit provides risks as well as opportunities. The EU can be a protectionist body. Now that the UK is out, greater access to priority markets globally can be achieved.
“It is imperative to understand that there is no reason that any part of the industry should suffer, with consumers losing out if the cost of goods and tariffs may go up. For example in food and agriculture, and imported goods for clothing manufacturers may be problem areas if the right trade deals are not completed,” he added.
As fashion retailers often pay for their stock in dollars, the lack of strength in the pound is likely to hike their import costs.
Next, one of the UK’s most successful retailers, with a store on most city and town high streets, said in their latest trading statement, that they have hedged all their currency exposure and will not be affected by the sterling’s devaluation until at least January next year.
The impact of devaluation for next year has already been partially mitigated by pre-referendum hedging, and currency offsets from euro and dollar overseas revenues.
Based on current exchange rates, Next expects their costing rates to be 9% worse off than in 2016/17.
And other mitigating circumstances are expected, such as Far East currencies, including the Yuan, weakening against the US dollar.
Hitherto, Next are not drawing any firm conclusion over the impact that ‘Brexit’ will have on their business and the behaviour of consumers.