Brexit And The High Street

 

For years now, Brexit has hung over the British economy like a Damocles’ sword, ready to wreak havoc on just about any industry imaginable. Brexit is a topic fraught with emotion for both retailers and buyers, and the effects are yet to be fully understood. 

 

What is clear, however, is that Brexit uncertainty has already taken a toll on the British economy, with retailers hard hit by this wrecking ball.

 

 

 

On the surface, the UK economy has done well even after the Brexit referendum which took place in 2016. According to a March 2019 report in The Guardian, the UK economy has seen a low rate of unemployment, at 3.9% the lowest in over 40 years. 

 

Despite robust economic performance, however, the fallout from the Brexit referendum has hung over the British economy like a mushroom cloud. 

 

As The Wall Street Journal reports, the result has been that low consumer confidence about the future of the economy has impacted current spending. 

 

The WSJ noted that total sales fell in 2019 by 2.7% from 2018, while same-store sales declined 3%. The drop was most severe for non-food sales, which dropped 4%.

 

 

 

The decline in consumer spending comes at a time when a rosy job market has seemingly improved labor market prospects. For one thing, a better job market tends to produce better wage growth. In April 2019, CNBC reported that UK wage growth was at a decade high of 3.4% even as Brexit loomed over the economy.  

 

That this strength in the fundamentals of the economy has not translated into better consumer confidence can partially be explained by the drag from Brexit concerns. The combination of lacklustre consumer confidence and low spending has dragged down sales on the High Street.

 

 

 

The effect of Brexit on the High Street is a major theme in retailers’ challenges over the last few years. Worries have already emerged over how consumer will survive post-Brexit. Brexit uncertainty has shifted immediate consumer behaviour, even though Brexit, if and when it happens, could be some way out in the future.

 

 

 

According to a Drapers Online report, Brexit was at the top of retail shoppers’ worries in a recent survey. This issue, reported by 48% of survey respondents as the major worry on their minds, topped concerns over the economy and lack of savings.

 

Cuts in consumer spending have a disrupting effect on High Street retailers and their ability to plan for the future. One industry executive, as quoted in the Drapers Online report, expressed dismay at the difficulty the environment created for High Street retailers’ plans.

 

 

 

While consumers might share concerns about Brexit’s impact for the country and society generally, their concerns appear to be mostly personal. 

 

Online publication UK Tribes conducted some qualitative research into consumers’ perceptions of Brexit. The publication found a high degree of worry about one’s future. At the top of consumers’ fears are concerns about their future job security and income if and when Brexit occurs.

 

 

 

A plethora of studies have been conducted into the impact of Brexit both in the short term and in the long run. Due to their varying figures and estimates, it’s hard to put a single figure on the economic impact of Brexit. A general consensus, however, suggests that current consumer cutbacks in spending could be worsened by much larger headwinds after the UK leaves the EU.

 

 

 

Take, for example, data reported in The Independent, which showed that 64% of consumers expected prices to rise. A majority, 54%, also expected more High Street shops to close. Consumers had done the math on their own and figured out that after the UK left the EU, some goods were likely to become more expensive.

 

Consumer expectations of High Street store closures have been proven accurate since then, with more stores closing. Some of the recent announced store closures involve High Street brands like Homebase, Marks & Spencer, and House of Fraser.

 

 

 

Post-Brexit, there are likely to be even worse outcomes for High Street retailers. Higher costs, especially on imported goods, and increased store closures, could become a long-term reality.

 

As reported in The Conversation, both the British government and other organizations have run the numbers on the likely future impact of Brexit. Even the most upbeat estimates indicate a future struggle and worse prospects for the economy than the baseline scenario of staying in the EU.

 

Some of the figures from the official UK government estimates placed long term negative impacts from Brexit at a 9% shrinkage in the UK economy. Other estimates from organizations like The UK in a Changing Europe alongside the London School of Economics, estimated the worst impact at a 3% drop in UK economic activity.

 

To put a practical financial figure on this impact, an estimate from Goldman Sachs, as reported by ICAEW Economia, said Brexit cost the UK economy £600 million a week. These costs will inevitably be borne by retailers and other businesses, along with the consumers that constitute the economic base.

 

 

 

Retailers worried about the impact of Brexit can position themselves the best way for any eventuality by preparing ahead of time. There are myriads of issues you need to take into account, but you can learn from others who are coping with the challenges.

 

 

 

One of the key challenges arising from Brexit is the disruption of supply chains, especially for businesses that have close ties to the EU. 

 

You can look at the experience of Robinson Brothers, a chemical business with close EU integration in its supply chain. 

 

As part of its survival plan for Brexit, the company has already put in place measures to mitigate inevitable dislocations in its supply chain. Part of the strategy involves stockpiling what it can and setting up a subsidiary or only representative company (also known as an OR) inside the EU to facilitate its trade. 

 

 

 

Part of Robinson Brothers’ Brexit survival plan is approaching the problem with a strategy to be as adaptable as possible. Over its more than 100 years’ history, the chemicals manufacturer has had to adapt to a wildly varying landscape to survive.

 

What being adaptable means is that instead of looking at your business as static, you accept instead that you will need to make changes to suit the new environment. 

 

For retailers who might get squeezed by Brexit, this could mean seeking new markets, forming partnerships with other businesses, and other adaptive strategies.

 

 

 

Brexit has already imposed enormous costs on the UK economy and High Street retailers. In the time between the Brexit referendum and finalization of Brexit, these costs have led to lost income and less economic activity. The costs for the High Street continue to mount. Consumers are reluctant to splurge on shopping when worries over their own futures post Brexit weigh on their minds. In this environment, retailers will need to plan not just for their immediate survival, but how they can adapt their businesses to a changing operating environment.