25 Sep 2018
Competitor Monitor data has shown us that retailers are increasingly aware of their Brexit preparedness and how the move will impact their business.
But companies must do more to prepare for the effects of pricing turbulence we expect to affect the UK retail market in the run up to both the festive spending season as well as around March 2019 when the UK leaves the EU single market.
High street stalwart Next has set a trend for identifying how a hard Brexit – which it says is an increasingly likely outcome as current negotiations stall – could affect its business. Its analysis revealed that the biggest risks to its operation in the case of a no-deal Brexit are delays at ports, increased tariffs and a rise in the cost of goods due to a fall in the value of the pound.
We don’t think their Brexit impact analysis to be exactly replicable for other businesses, which have different approaches to logistics and sourcing than Next. But what it does show is that companies should be prepared to adjust their pricing as the effects of Brexit take hold to ensure they are able to achieve their business aims.
There is already some evidence pricing is getting more volatile in the run up to both Christmas and Brexit as consumers worry and retailers in various stages of health adjust their pricing. Effects of a hard Brexit in March will increase this further as delays at ports, increased tariffs and increased sterling volatility take hold.
Tracking the dynamics of the market for key goods is an essential way of ensuring retailers are on top of price changes caused by Brexit, fluctuations in consumer sentiment and a variety of pricing strategies employed by retailers ahead of both the important Christmas season and the UK leaving the EU.
Next is one of the best in the UK for having successfully combined its high street presence with online sales and its report on Brexit sets the tone for the UK retail market. Struggling high street chains like House of Fraser and Debenhams can only look on in jealousy at how smoothly Next has transitioned its sales from its old-fashioned catalogue to its in-demand website.
Next is not worried about Brexit – but other retailers that haven’t focused as well on their e-commerce processes face some difficult months ahead, much of which will be due to the challenges affecting pricing. Online sellers will have to ensure their market intelligence is up to scratch if they are to hit the ‘sweet spot’ between targeting the value-conscious shopper and protecting margin.
Like Next, retailers should determine what percentage of their goods are sourced from within the EU or Turkey. Currently goods and services from these areas are duty free but are set to be liable to import duty if the UK imposes them which will raise costs.
Likewise, goods and services with countries like Tunisia, Morocco and Mauritius which benefit from a free trade agreement (FTA) with the EU are likely to have these extended by the UK – but Next has warned the UK is unlikely to be able to make these arrangements before March of next year.
In addition to an increase in the cost of goods due to a potential fall in the value of the pound, retailers importing goods are also likely to face additional payments for customs clearing charges.
At Competitor Monitor we believe that now more than ever retailers need to make sure they have a Merry Christmas and a very Brexit New Year.
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