How Brexit will reshape the UK Retail landscape

How Brexit will reshape the UK Retail landscape

Emanuel Modrovic 4C Blog

Against the background of a ticking two-year clock, this analysis will argue that Brexit will reshape the UK Retail landscape by shuffling the cards once more.

There are 3 key Brexit-related challenges facing retailers:

  1. Currency and financial movements

This is an effect that has already been hitting retailers operating in the UK. Movements of exchange rates outside of their typical bounds and changes to the financial backdrop will directly impact profit margins, import costs, and operational flexibility.

  1. Access and availability of goods

While this will only fully come into effect when Britain leaves the customs union and the single market, it is already looming over decisions and will likely impact choice and pricing of goods earlier. The modalities of access to the single market are currently still unknown but will significantly determine retailers’ product ranges.

  1. Changes in access to labour

This is an interesting one as it will hit retailers two-fold. First, there is a direct impact with potential restrictions on staff employed directly by retailers, such as in-store, logistics and warehousing staff. Secondly, it impacts retailers indirectly as their suppliers are facing the same restrictions. In some key sectors like Meat Processing, the British Meat Processing Association recently reported that 63% of all staff employed by its members are from non-UK countries.

Benefits for non-UK headquartered retailers

All of the above means that non-UK headquartered retailers are almost certainly going to get a significant leg-up on UK retailers. Non-UK retailers will be able to use a stronger Euro and Dollar to get ‘more bang for their buck’ when it comes to investments, such as opening new stores, refurbishments, and product development. Coupled with better access to global capital markets and global supply chains, they will be able to more effectively mitigate any currency disadvantages and reduced profits. Additionally, any UK retailers with European operations, such as Tesco and Sainsbury’s, will see adverse impacts on their cash in- and outflows, profitability, and their investment ability.

What does this mean

Retailers operating in the UK are likely to tackle 3 key areas to help offset these challenges.

The first area is supply chain diversification, which will be easier to navigate for retailers with a significant international presence. The second area is value engineering, which will put emphasis on controlling impacts on cost, trade barriers and regulatory changes. Finally, the third focus area will be managing the impacts of immigration restrictions. Retailers already focussed on local talent, suppliers, and processing are likely to have lower short-term exposure but impacts are likely for everyone if low-cost labour is restricted due to UK immigration laws.

The impacts on the UK retail landscape are likely to be substantial and considering that over two-thirds of retailers have no plans for Brexit yet, it is a pressing issue. The first thing to do now is building a dedicated cross-functional Brexit transition team. It is key to stay on top of and navigate the political and competitive changes/challenges, or else there may be no business to run after Brexit.

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