Brexit Impacts on the Retailing Sector
03-08-2016
Maureen Hinton the Group Research Director at Verdict has given an insight into the clothing sector, responding to major questions regarding the falls.
Why are consumers spending less on clothes, given that the price of many clothing has been fallen?
Hinton blames the weather for the reduction to spending, because even though most people purchase clothing for Spring/Summer that is seasonal, and for example cooler, there is still sale impact. This is used as an excuse for retailers when sales have been affected, but Hinton claims that this is due to the fact that “retailers plan for spring” however there is always a risk that shops have the wrong type of clothing.
Also there has been “a shift in consumer trends”, as consumers are more likely to be spending on entertainment and/or travel. Hinton believes the way to improve sales is by creating “a change in the way that we approach fashion and clothing for a new type of consumer”.
“Next has suffered trading due to the Brexit uncertainty, which kept shoppers from spending. The sales at Next fell for 3 months since the beginning of May with full price sales down.” Chief executive Wolfson predicted this year may be the toughest it’s faced since 2008.
Lord Wolfson CEO of Next said earlier this year that: “This year may well feel like walking up the down escalator with a great deal of effort required to stand still.”
Is it very hard for retailers to make money, at the moment?
“Yes, it is. Of course, with Brexit and the currency exchange rate falling. There’s going to be a rise in cost in the coming future.” Hilary states that we “have to look very hard at cost and with lower demand as well – there is of course going to be a squeeze in margins for retailers over the next year.”
Jane Foley from Rabobank also has spoken out regarding the pressure of retailers and in particular wage inflation. Although the Bank of England has been trying to improve confidence and demands Jane Foley has seen that there is pressure for M&S, Next’s rivals over the last few years. This is majorly due to the issue of consumer confidence. The wage inflation in the UK is “really quite low” and there is a problem in increasing demand. Talks of low inflation is common in the UK, generally in particular for developed countries. Jane Foley evaluates what low inflation means: “It means that demand is weak, so we’re not getting the demand coming through, we see this in the retailing sector and part of this is because we have such low wage inflation.”
Confidence plays into the state of the economy along with the uncertainty that there is with the referendum result. The National Institute of Economic and Social Research found that “there is a 50/50 chance that the UK will fall into recession in the next year and a half.”
The market conditions since the vote:
- – Orderly market conditions
- – Stock market 8% lower – but it has recovered
- – Sterling – falling markedly
Even though there is a reduction in demands, since the referendum some expectations have been relieved. “We don’t know what’s going to happen with the expected GDP in 2017, or the impact of Brexit. All we know is perhaps initial market impact is not as bad as some of us feared.” – Jane Foley.
The CEO of FashionCapital Jenny Holloway (pictured below at her factory) has spoken out about the clothing sector stating: “The new way forward is already here! Retailers should be negating risk by buying closer to the season. It’s not difficult but a retailer needs to be a productionista as well as being fashion forward. We turn around garments for ASOS.com which are high quality in just 3-4 weeks… Why are retailers not seeing this amazing opportunity of seeing huge gains in fast track production?”
By Shivanee Tailor
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