Brexit chaos no relief for embattled retailers

After rejecting multiple Brexit proposals from Prime Minister Theresa May, the British parliament on Tuesday voted to take control of the process of leaving the EU. But this is unlikely to create any relief in the short term for retailers struggling with the uncertain and erratic behaviour of consumers.

According to research firm GlobalData, over a quarter of shoppers have begun stockpiling food and groceries, or plan to, in the lead up to the historic moment, citing a belief that the cost of food is likely to rise post-Brexit.

Despite this stockpiling behaviour, February failed to deliver strong sales for retailers, with total retail spend only increasing 3.4 percentage points above a poor January – despite February being the hottest on record, which should have led to strong sales of spring products.

GlobalData argued that the uncertainty around Brexit continues to dampen consumer spirits and spending, with a looming no-deal scenario providing too many unknowns for the British public.

“There is simply not enough information provided by the government on how food prices, availability and regulations will be affected in the event of a no-deal Brexit,” GlobalData retail analyst Thomas Brereton said.

“The just-in-time supply chain that UK supermarkets operate on means that there is not the specialist infrastructure in place to deal with stockpiling – particularly of fresh goods – and it is important that the Government provides clarity on the situation as quickly as possible to reassure shoppers.”

Brereton noted that the supply chain chaos likely to result from a no-deal Brexit would force food inflation from a forecasted 2.4 per cent to 5.1 per cent – with price increases across core categories such as fresh fruit and vegetables.

Faced with this, some retailers like Tesco are taking a “hope for the best, prepare for the worst” mentality. According to an internal memo seen by the Financial Times, the supermarket chain has rented out additional refrigeration units in order to ensure it has product to sell in the event supply chain scarcity enters the equation post-Brexit.

The effects of Brexit are being felt beyond just food.

Premier Investments, which owns the Just Group’s portfolio of apparel brands, including kids’ stationery chain Smiggle, which operates in the UK, called Brexit a “once in a lifetime event” that has negatively impacted the entire UK economy and sapped consumer confidence over the critical Christmas period.

The company in September announced four major pathways to accelerate Smiggle’s growth without relying on historical paths to global growth, such as committing to long-term leases.

As a direct result of Brexit, Premier Investments said, Smiggle expects its aspirational target of $450 million in annual global retail sales will be delivered in calendar year 2021 or 2022.

Thanks to its strategy, it expects retail sales growth to deliver much higher EBIT margin with materially less capital, and to generate far higher cash flows than the originally planned multi-country store rollout.

With the implications of a no-deal exit being felt far and wide, it’s no surprise that international retailers are rethinking the supply chain strategy they use to trade in the UK and EU.

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