It took many by surprise but last week the UK voted to leave the EU. What does Brexit mean for your business?
It’s doubtful that the fate of independent retailers’ businesses featured in the thinking of many voters last week – even in that of the retailers who took part. Yet, the transformative effect leaving the EU will have on the UK makes it likely that the consequences of this historic decision will be seen in stores across the country.
“It’s all pretty uncertain at the moment,” Raoul Ruparel, co-director of the neutral think tank Open Europe says. “For the short-term the focus is going to be on domestic politics – who is going to be the next prime minister, for example – and once they are in office it will be a case of what their strategy is. In combination with the civil service, they will have to come up with a negotiation plan and figure out exactly what they want from the EU so I don’t think the process of leaving is going to start for quite a few months, maybe not until towards the end of the year.”
This means much of the predicted impact regarding EU regulation and potential tariffs on food imports has yet to become clear. Mr Ruparel maintains, however, that stores may still feel the effects sooner rather than later.
“In the short-term it seems market prophecies are coming true to an extent. There’s a lot of volatility, the pound and stock market have dropped. If that continues and feeds through to the wider economy then it might lead to the economic downturn some warned of and that would hit retail spending,” he says.
Mr Ruparel also suggests the falling pound may mean higher food prices as the price of imports is raised.
A retail analyst’s point of view
It’s a point backed up by Darren Shirley, retail analyst at Shore Capital: “If you start to see material currency weakness against the dollar or Euro you will start to see inflation rising over time and retailers will start to see rising import costs,” he explains.
Worryingly, Mr Shirley believes the three to four week lag it will take for prices to rise will put independent retailers at particular disadvantage. “Independents are likely to be a bit more exposed as they are unlikely to have that hedging position in place,” he says. This means retailers will have no cushion as costs start to go up. “The likes of Aldi and Lidl may decide to absorb those costs and take a hit in margin to try to further gain volume or market share or new trade – that’s the big imponderable.”
The message isn’t entirely negative, though, and Mr Shirley thinks the contraction in the market over recent decades mean that the retailers who have so far survived are well placed to do so again.
The Retail Challenge
“We have had a steady decline in independents in past 20 to 30 years and what is left is a lot of small and good operators who have been very active, adding value to their stores and doing whatever they can to drive footfall,” he says. “It is going to be a challenge, but it’s going to also be a challenge for the big four, it’s going to be a challenge for everyone. No-one is going to be immune if we do see material currency weakness.”
David Gilroy, former operations director at Bestway Wholesale and now convenience lead at W2 Commercial, has decades of retail experience and is positive about retailers’ prospects for the coming years. “I’ve seen these shocks before in the seventies – three- day week, etc – and nineties and many retailers flourished. My view is that small retailers could benefit if consumers look to shop more, little and often, and that pressure on the large outlets will continue. Also a little food inflation is helpful to retailers. But if consumers are being squeezed and feeling worse off, they will step up their demand for value. For sure, retailers will have to be highly adaptable in what is certain to be a new world. But good retailers have nothing to fear from Brexit.”