13
Apr
2018
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Brexit UK

Brexit and Retail in the UK

Brexit is not a physical thing. It’s just the beginning of a whole lot of processes, and it will be going on for a while yet. There is tremendous uncertainty and confusion among retailers and everyone else about how and what will happen.

But some things are starting to become clear. One is that there will likely be an overall slowdown in the economy. Hopefully this won’t result in a recession, but to whatever degree there is a slowdown, one result will be a rise in unemployment . . . which in turn will decrease overall consumer spending and consumer confidence.

A Retail Apocalypse?
How will retailers in the UK respond? Retailing has already been stressed the last few years from online competitors, oversupply, and other factors. Is Brexit going to be the final straw that precipitates a “retail apocalypse” for real in the UK?

Probably not.

Retailing is an amazingly resilient and dynamic activity. Far from weakening surviving retailers, the difficulties faced prior to Brexit have served to make them stronger and more competitive. In fact, the fundamental and major things that make a retailer successful will remain consistent and will not be affected by Brexit. These include the Five Laws of Retail, especially the First Law, People First, which means that retailers who continue to prioritize both customers and employees won’t see a sudden exodus simply because of the changes caused by Brexit.

How Brexit Will Affect Retailers
The changes that Brexit will precipitate for retailers are primarily operational. Finance, supply chain, and some human resource functions will have to make some major adjustments as the UK leaves the European Common Market. There will be changes to the labor force because EU citizens will not be able to travel and work in the UK as easily, and the reverse will be true as well. Financially, a short-term devaluation of the pound against other currencies is expected next year. Additionally, import cost of goods may increase as imported products are taxed differently.

But the major things that determine a retailer’s success or failure will remain the same, Brexit or no Brexit. Let’s take a quick look at three more of these as examples.

The Second Law of Retail: Turn Is Magic.
Non-performing or distressed inventory must be liquidated in a timely fashion whether the retailer is part of the Common Market or not. This will not change. The important thing for retailers will be to address issues honestly and not “hope things will get better” after Brexit is complete.

The Third Law of Retail: The Power of Product
If women’s spring dresses are in a pastel cycle, don’t give them brights. Retailers must always know their customers. To a great degree, Brexit means nothing to a specific retailer’s customer. It is an invisible back office thing. Identifying the right product at the right time will not change because of a change in commerce regulations.

The Fourth Law of Retail: It’s the Retail Price
This might be a tough one, but it still holds. Brexit is likely to increase costs of some goods as UK retailers have to pay higher tariffs on imported goods. This is not good. But it will not change the perceived value of any particular product. If Brie cheese is worth 12GBP at retail before Brexit, it’s still worth 12GBP after Brexit—even if the cost has increased and thus margins have been reduced.

One last point. The processes and outcomes of Brexit will increase the importance of the Fifth Law of Retail: Protect Your Downside. We know there will be challenges, so there are things to be done to minimize the risk. Retailers must be nimble and ready to respond to trends by keeping inventories low and managing turn. They must continue to predict the right products for the right times and not charge too much at retail just because the costs increase. Following these strategies can lead to success in any retail climate.

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