The outcome of a referendum on 23rd June 2016 was met with shock and disbelief by many British retailers - 51.9% of participants voted in favour of the UK leaving the European Union. The polls prior to the momentous vote got it wrong, including three polls on the day by trusted research bodies Ipsos MORI, BMG and YouGov, who predicted the "remain" lobby led by 54%, 53% and 52% respectively.
Regardless of how the pollsters made such a glaring error, the landmark decision by the electorate who voted to leave will have a far-reaching effect on the retail industry for many years to come. In the aftermath of the referendum, economists suggested that the majority of surveys had indicated British businesses wanted the UK to remain in the EU.
In the period immediately after the vote to leave, uncertainty about what the future held led to a reduction in consumer confidence. Head of retail and business insight at market research firm Nielsen UK, Mike Watkins spoke of the importance of consumer psychology – a factor which drives the retail sector’s fortunes. He explained that consumers needed to be (or at least feel that they were) better off for retail growth to continue. In light of the uncertainty due to Brexit, this wasn't likely.
His views were echoed by analysts at the Retail Think Tank, who said consumers would be unlikely to view the future with any positivity after the shock vote, due to no-one having a clear idea of what would happen. The RTT said future retail consumption would likely waiver, although in the shorter term, major purchases that were already planned (such as holidays) would go ahead, as consumers had already made a financial commitment.
Experts at Global Data - formerly known as Verdict Retail - said Brexit was a "drag on consumer confidence" and it also prevented retailers from making any firm business plans because they had no idea how the government was going to solve the issues surrounding Britain's departure from the EU. Retailers are left considering every eventuality, rather than knowing how and where to focus their time and resources.
Analysts at IPSOS Retail Performance's retail intelligence arm described the Brexit vote as a "sharp shock" in political terms, causing general retailers' share prices to slump in the aftermath, as the City feared sustained Sterling weakness and a possible future recession.
While Theresa May tries to thrash out an exit plan with other European leaders that will benefit the UK and keep her European counterparts happy, the issues remain complicated. Great Britain still wants to trade with the EU after Brexit, as it accounts for 45% of the UK's external trade.
Nations such as Iceland, Liechtenstein and Norway have tariff-free access to the Single Market through the European Economic Area. However, should Britain agree to something similar, it would involve an agreement permitting the free movement of people, hence it would mean backtracking on one of the promises that spurred the "leave" vote in the first place.
May will try to negotiate a set of UK trade agreements with other nations to provide some access to their markets, allowing independent economic trade. However, this will take a long time to negotiate. It's particularly difficult because Brexit isn't one single concept but rather the start of a multitude of changes in the nature of how we deal with European counterparts.
Alternatively, it could be seen as an opportunity to develop new trade policies and businesses with a more favourable slant to the UK. Pre-Brexit, the pound sterling was said to be overvalued, so after the referendum some correction was correctly anticipated. The CCR advisory group says this is a good thing for retailers because devaluation means the UK has become a less expensive holiday destination for overseas visitors, who spend plenty of money in shops. The tourism industry is worth around £135 billion to the UK and supports three million jobs, so any boost in tourism will see a comparable boost in the retail sector.
Economists have forecast that retail spending should have grown by 1.4% by the end of 2017. Although growth is envisaged, it is actually 0.3% less than the forecast made by the Chancellor in his Budget speech of 2016.
Retail spending is fluctuating but analysts say this is continuing a trend that began three years ago, so it's not a case of patterns changing.
The Centre for Retail Research advises the importance of retailers assessing their supply chains because theoretically, leaving the EU permits them to purchase from the cheapest markets. Every retailer, regardless of their business's size, must analyse what this new freedom means to them and start to create a new supply chain in anticipation of the completed Brexit.
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