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British Retail Up in First Half Though Brexit Clouds Apparel’s Future

The British summer of 2018 can’t take any more plot lines. With the longest prolonged heatwave in 40 years, a cabinet in disarray over Brexit, a royal wedding, England’s best shot at the World Cup in three decades, and thousands of Donald Trump protesters lining the streets in fury, the country has been on a feverish high since May.

But have these splashy headlines had any impact on Britain’s depressing annual retail forecasts? A KPMG/Ipsos Retail think tank report published late last year gave the British high street a bleak prognosis for 2018. It argued than an inflammatory cocktail of political upheaval, economic uncertainty, lower disposable incomes and regulatory compliance issues would lead to a lackluster year for U.K. retailers.

This came on the back of an already poor year of sales. British disposable incomes were squeezed due to a jump in inflation coupled with stagnant wage growth—2017 saw inflation rise to 3 percent, while wages remained stuck at 2 percent.

The transformation of working life was also cited as a factor for 2017’s low retail sales—particularly the rise of self-employment (due to generous tax cuts for freelancers), part-time jobs and zero-hours contracts. A lack of investment by British business played its part, which was largely believed to be a result of nationwide Brexit uncertainty.

A survey by Visa found that consumer spending shrank by 2 percent last year, the fastest year-on-year decline since 2013—a fall driven by an even more worrying 5 percent decline in spending on the high street.

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However, the mid-year 2018 results show better news for the economy, as retail sales jumped by 1.3% in May from the first quarter—easily beating January expectations—according to KPMG. Inflation also held steady at 2.4% until July.

The unusually hot weather has been cited as a factor in tempting the public out of their homes and into the shops—as have the excitement surrounding the royal wedding and England’s unexpected semi-final place in the World Cup.

Together, these factors have kept the British economy on an even keel, although sales remain far from sensational. Major British retailers such as Marks & Spencer, Mothercare and House of Fraser are all closing brick and mortar shops around the country, cutting jobs and downsizing their design teams to stay afloat. Although there are other issues at play (in particular a failed attempt by M&S to remarket themselves to younger shoppers), lower levels of consumer spending across Britain are generally believed to be due to uncertainty.

There are mounting fears across British society over potential job losses from a hard Brexit. Prime Minister Theresa May is failing to push through plans for a soft Brexit, even though the economy is largely dependent on Britain being able to trade freely with the EU. The far right of her Conservative party—which believes the need for sovereignty and lower levels of immigration trump economic policy—blocks her at every turn.

The vote to leave the European Union is generally seen as bad news by the fashion industry, which relies heavily on an international workforce and a global supply chain. More than 90 percent of creative directors in London voted to “Remain” in June 2016, according to a survey by the British Fashion Council. And in a recent Fashion Roundtable white paper, an overwhelming 80 percent of respondents—which included British Vogue editors and tutors from the Design Council and London College of Fashion—said that they felt Brexit would be bad for fashion in the UK and EU.

These fears are not unfounded. According to the Organisation for Economic Co-Operation and Development, Brexit could reduce the UK’s GDP by £40 million ($52.7 million) by 2019. Ending free movement would also cause major problems for the creative industries, which rely on freelancers to sign on to last-minute projects in various countries around the continent. It would also cut Britain out of a Europe-wide fashion supply chain, where goods are shuttled between international manufacturers.

Retailers are also currently having to prepare for a worst-case scenario situation. If Britain crashes out of the European Union with no deal in March 2019—which is looking increasingly likely as ministers fail to find a solution to the Irish border question—World Trade Organization rules would come into effect. This means tariffs on clothing made in countries such as Bangladesh, Cambodia and Vietnam will rise from 0 percent to as high as 25 percent. This would wipe out most retailer’s margins overnight. And while the British government is clearly aware of the impact this would have on big business, Brexit hardliners continue to claim that ‘No deal is better than a bad deal.’

“Fashion has to have a louder voice when it comes to Brexit,” says Tamara Cincik, the founder of Fashion Roundtable and a Remain campaigner. “The fashion industry brings billions of pounds into this country and we all know that Brexit will be an unmitigated disaster for it—and yet not nearly enough people are speaking out. Fishing brings in less money than we do and yet the fisheries are discussed constantly in relation to Brexit. The fashion industry needs to stop talking to itself, realize its value and get galvanized into action. Particularly now we are potentially facing a no deal.”

However, many city commentators have said that while Brexit is bad, a Labour win under opposition leader Jeremey Corbyn could be even more dangerous for the economy. As politics have become polarized in the Brexit era, Corbyn’s aims, which include significantly raising taxes and nationalizing industry, have been embraced by the younger generations.

So, while the British high street can be heartened by the improved 2018 retails results, major brands will remain in perilous waters until Westminster and Brussels find a business-friendly solution to Britain’s biggest political crisis in a generation.