The Brexit Impact: a view from across the pond
I happened to be in London in June during the week of the now-historic vote by Britons to leave the EU. When I went to bed the night of June 23rd, I suspected, as many did, that despite a very close vote, the UK would remain an integral member of the EU. I woke in my London hotel at 5:30am on the 24th and was as shocked as many Brits to learn otherwise.
I read and heard the debates for months on both sides and noted that many of the arguments, exhortations, fears and concerns echoed eerily similar themes being put forth in the election campaign on this side of the pond.
The good news for the UK is that the vote is in the past and an outcome many, especially in the retail and apparel worlds, dreaded came to pass and the sky did not fall. Business has gone on, pretty much, as usual. Retail sales have actually been good. Despite the drop in the pound, there has been no immediate inflationary impact. Retailers and brands who have long lead time contracts or have been able to hedge the currency are blessed with at least some time to refine and adjust their supply chains. Prospects for a good holiday and festive season are encouraging.
It was noted in just-style’s post-vote industry survey that most feel it will take two years to fully understand the implications of the vote. While, in a technical sense, that is almost undoubtedly true, many cannot afford to wait for the implications to manifest themselves to act. To deal with the political implications of leaving, the industry has to rely on the government and is already lobbying and working with the government to protect its interests. Maintaining as friction-free access as possible to the European market is important, as is allowing friction-free immigration of talented designers, merchants and skilled factory workers from Europe. Protecting the opportunity for British designers to work in Europe is also important. But, at the end of the day, lobbying does not ensure the desired outcomes for British fashion or retail. Only by being proactive in running their own businesses and negotiating through the uncertainty now and in the two years ahead will the winners be able to clearly separate from the losers.
So, what does that mean? Well, for one, the weakened pound means higher import costs and a potential drop in consumer confidence (more markdowns, shrunken margins), even before Article 50 is invoked or any trade or immigration deals are negotiated. Retailers can start by looking at their design/buying/product development process now. There is still tremendous waste, inefficiency, redundancy, inflexibility and indecisiveness. Most have lead times ranging from 12 to 14 to 16 months. Many have already started planning 2018 collections, while their Continental fast fashion competitors are planning next quarter’s new styles. Pressure on margins, both from a weakened pound and potentially higher promotional costs, can be more than mitigated by addressing flawed, historical, taken-for-granted product development processes. Embracing 3D virtual design, buying and product development technologies can speed processes (and decisions) from months to days. Bringing higher percentages of product sourcing closer to home may seem counterintuitive to executives focused on margins and their bottom lines, but considering the counter effect of producing smaller collections faster, with higher sell-throughs, fewer markdowns and quicker reaction to fashion trends, there is an opportunity to increase margins substantially.
From my perspective, that of a fan of the UK, a frequent visitor, and engaged apparel industry executive, the British fashion-retail-apparel industries post-Brexit will actually look much like the industry pre-Brexit. There will be some retail consolidation but there will be more start-ups and independent designers. There will be fewer stores but there will be better omnichannel opportunities to engage and sell product. There will be higher sourcing costs from some areas but these will be more than offset by more efficient design, development and decision processes. Access to customers may prove more difficult in some markets, but emerging markets can more than compensate for this.
People will still need clothes and desire fashion. For most negative impacts there will be a countervailing positive. While the government will be focused on negotiating the optimum trade deals and immigration policies, in the end, the real implications of Brexit are in the hands of the people who run our industry today (and tomorrow): executives, investors, designers, buyers, technicians, sourcing and production teams.
There will be substantive changes to our industry to be sure but, in my opinion, the most impactful will occur more because of factors not related to the exit than to the exit itself. Today’s consumer is empowered by digital technology to control the retailer, not the other way around. The world is one global market for consumers regardless of trade deals and borders; we better figure out how to reach them. Sourcing smaller collections, closer to home, will not only make financial sense, it will enhance sustainability and foster social justice.
A lot of people in the industry look at the Brexit vote and see lemons; I see a nice tall, refreshing glass of lemonade.
Ed Gribbin is President of Apparel Business Consultancy Expert, Alvanon
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