Pinning down the after-effects of the Brexit vote in the UK is turning out to be quite hard. Despite pre-referendum warnings of disaster or promises of a new, golden age for Britain, we sometimes forget that we’re still in the EU and will be for a good few years yet. So if the sky is set to turn pink and the grass blue, or if the streets will suddenly be paved with gold, it won’t happen for a while.
What we do know is that there have been a number of instant effects, some bad and some good, but the long-term trend is a concern. Yesterday’s Bank of England cut in the base interest rate and new round of quantitive easing is worrying (despite one leave-supporting newspaper owned by a UKIP cheerleader today writing as if it’s a good thing done from a position of strength).
So, to those mixed instant effects. Take the weak pound. This will eventually feed through into higher costs for retailers as Next said this week, and that should also mean higher prices. But for now it has also made it cheaper to shop-UK.
ContactLab and investment specialist Exane BNP Paribas said this week that the UK is currently the world’s cheapest luxury goods market because of the pound’s plunge.
With ContactLab estimating that overall luxury spending should start to rise and Chinese spending is back on the up, it seems clear that Britain will be a key beneficiary given its new bargain destination status.
The report estimated that global travellers now account for half of all luxury goods purchases, which means Brexit must be making the luxury sector smile at least on some levels.
The report estimates that global travellers now account for about 50% of global luxury goods sales and up to 80% of such sales in Europe. As fluctuating exchange rates make specific destinations more attractive for shoppers at certain times and the UK currently accounts for 6% of luxury sales, the Brexit effect means that could rise, at least in the short term.
The pound’s plunge also appears to have boosted online sales for UK sites from international shoppers. Also this week, I read a report that said online retail sales by New Zealand consumers grew 10% in June thanks to strong spending on offshore sites, especially the UK after the pound’s fall against various currencies. While Kiwis spent more online overall, spending on UK sites rose by a massive 47%.
Bad news for the high street
Today, BDO’s high street sales tracker was one of the indicators of worse news. BDO said there was absolutely no growth in retail sales in July, despite discount of up to 70% (and Sports Direct even offering ‘flash sale’ discounts of up to 90%). Just to repeat – that’s a big fat zero in retail sales growth.
While sales did rise year-on-year in July’s final week, BDO suspects this was because of retailer’s extending their clearance sale period later than usual. It also suggests that with overall monthly sales being flat, the first few weeks in July could even have seen lower year-on-year sales.
And while overall sales were flat, fashion sales dipped by 1%.
BDO’s Sophie Michael also said that there are even discounts appearing on new-in products. “There’s clearly nervousness with some retailers,” she said.”There’s a cost behind that which we won’t see until the results start coming out.”
One piece of good news though was that online sales saw 21.7% growth – but we don’t know whether that was due to UK shoppers or to that aforementioned Brexit effect from foreign shoppers. With some retailers reporting unexpected twofold or threefold growth in July online, I suspect that the experience of New Zealand shoppers was repeated worldwide and was a significant factor in the rise.
Will foreign shoppers continue to see Britain as shopping heaven? That all depends on the value of the pound and we know that prices here will start to rise next year once the goods we buy from abroad become more expensive.
And there’s the consumer sentiment impact to take into account too as far as British goods being sold abroad are concerned. A new Ipsos Mori poll shows more than a quarter of people from EU countries feeling less inclined to buy British goods following the Brexit vote.
As many as 27% of EU members are less likely to buy British and 26% are less likely to holiday here, although 7% did say they’d be more likely buy British and 8% would be more likely to visit.
Whether those intentions turn into reality is open to question, especially as consumers tend to go where prices are low, regardless of how they feel about the country. As for UK consumers, they’re more of a concern for now.
BDO’s Sophie Michael, said: “Inflation is low, as is unemployment, but so is consumer confidence. Stores are finding it really difficult to get people to spend unless they feel they’re getting a bargain, which is why we’re even seeing discounts on new lines.
“The challenge for stores over the next couple of months will be to keep new stock on sale at full price for as long as possible.”
Good luck with that.