Commerce Trends

by Manhattan Associates

GUEST BLOG: Brexit – the word on everyone’s lips

The Brexit vote has spawn political and economic concern at a time when the UK economy was finally emerging from the shadow of the 2008 financial collapse.

Following the leave vote, the economy appears to be performing better than feared thanks to a resilient consumer. But a challenging period of uncertainty and adjustment looms, in the mid-term, with negotiations yet to begin on a UK exit.

istock_000005361504-window-shopping-mannequins_store

For the retail sector, the drop in sterling amid growing fears of a “hard Brexit” is bad news. Despite most retailers implementing some level of currency hedging, the cost of imported items is set to rise significantly against a backdrop of rising inflation expectations across the wider economy.

At a time when increases in the living wage, looming apprentice levy adoption and higher operating costs generally – especially linked to delivery and returns – are adding to business costs, it will become increasingly difficult for retailers to maintain margins.

Retailers will therefore likely need to make a strategic decision on pricing. With consumers having become increasingly price conscious since the financial crisis, this is no small feat. Businesses with healthy balance sheets and healthy margins can afford to play the wait and see game, keeping prices the same in order to protect or gain market share. Others are not so fortunate.

This is all playing out against a wider productivity problem that is having a significant limiting factor on overall economic performance. The UK economy output per hour remains around 15% below the level implied by its pre-crisis trend, for instance, with the problem particularly acute in retail. In fact, former Chancellor George Osborne has called the poor rate of productivity among the UK’s workforce as “the challenge of our time”.

Economic uncertainty emanating from Brexit should prompt retailers to pursue new ways to be more productive as a business, via digital means. However, ask any retail technology executive and she/he will bemoan the lack of available people with the right digital skill set to generate efficiency gains. Indeed, further compounding the problem, anecdotal evidence has emerged, since the vote, of start-ups and digital leaders upping roots and moving to new digital hubs overseas.

During times of economic uncertainty, seeking productivity gains is key. This is a mantra that retailers need to embrace if they are to negotiate the current fragile economic landscape successfully.

By Alex Hamilton, Head of Partnerships, Retail Week