Retail industry bamboozled by Brexit: is growth short lived?

RetailStore chief executive Ian Tomlinson discusses the confusing time for retailers in the wake of Brexit

Brexit’s effects and immediate aftermath that sent shockwaves through the global economy has now become the stark reality faced by consumers and retailers today. Unpredictable UK waters have seen inflation rise and consumer spending decrease across the retail industry. However, retailers over the last three months have managed to achieve stronger growth than expected by experts.

Latest retail sales have managed to pick themselves up as the British Retail Consortium-KMPG Sales Monitor shows a rise by 1.3% on a like-for-like basis on the same month as the year earlier. This rise has been the strongest growth seen by the economy since Easter, which has resulted in a 2.4% increase on a total retail basis.

However, the positive impact on retail growth may only be short lived as the change in inflation due to Brexit and threats of further rises will undoubtedly alter consumer spending at some point in the near future. The latest opinion from experts considers the unpredicted growth to be a case of consumers “turning a blind eye to the potential crush on spending power to come,” report KMPG.

Despite UK sales increasing slightly, analysts warn that the impact Brexit has had on the UK economy will become a certain unfavourable reality as the industry faces challenging times ahead as Britain leaves the EU – bamboozling times.

Inflation in July was 2.6%, down 0.1% from June, yet many analysts expect inflation to hit close to 3% later this year – mainly as a result of a weaker pound and inflation overtaking growth in wages, resulting in the additional squeeze on household incomes.

Brexit, consumers and retailers

It appears the worst has not yet hit, as predictions favour a further weakened UK economy, therefore what effect does this have on consumers and retailers?

Brexit has left the UK economy in turmoil, as experts are faced with muddled short term and long term predictions – most recently shown in the unprecedented rise in retail growth over the last three months. Amongst the chaos however, sits the consumer, absorbing calculations from analysts and industry experts who deliver prognosis on the UK’s future, leaving them increasingly under-confident on the UK’s economic outlook.

A survey conducted by Lloyds found that people were less confident about the UK’s financial situation since Brexit. The added concerns around inflation have continued to build amongst consumers and retailers, suggesting an immense impact on future intentions.

Retail sales account for around 30% of household spending, which in turn accounts for around 60% of UK GDP. As consumer worries increase over the expected rise in inflation, loss of confidence in the UK’s economy, people saving less and the added pressure on disposable income could mean that any further squeeze on consumer finances may have detrimental consequences on UK spending and ultimately hit the retail industry hard.

Retailers to change course after Brexit

The economic impact and fears of decreased consumer spending as their finances become increasingly tighter means that retailers are left to absorb the cost that Brexit has brought to the UK economy. Eventually retailers will have to share the burden of Brexit with consumers, as retail prices rise – either consumer spending lessens or retailers decide whether they can include these effects in their loss of margins. That said, some retailers are preparing for the worst and are seeking out new business opportunities Brexit will bring for the future.

Going international may just be the answer for British retailers to increase their profit margins and target a new customer base as many UK consumers soak up the consequent effects of Brexit. The fall in the pound has created an opportunity for British retailers to export internationally without the obligations and costs from the EU. The price advantage of the devalued pound will allow British brands to compete and rival other international brands. The stamp ‘Made In Britain’, may create the advantage they’ve been looking for, by targeting international business across Asia and emerging markets where the identity has become a high selling point.

Yet the technological challenges faced by British retailers may not provide them with the capability to take their brands worldwide. As a result, many British retailers both large and small, are investing into their backend technology systems and seeking out ways they can interact and capture a global market. Advancements in cloud technology enable retailers to interconnect in various languages and currencies by deploying a worldwide website that will enhance and grow their business globally.

With consumer confidence low, and the UK economy gripped by the impact of Brexit the only option it seems for retailers to outlive this time of uncertainty is by adapting. It may just be time for retailers to invest in their IT and technological capabilities as a way of surviving the uncertainty and reality of the UK’s economic future.