RETAIL FORECASTS REPORT 2021 | BDO LLP 11
RETAILER BREXIT RISK COMPETITIVE POSITION IN FACE OF BREXIT B&M Lower
The transition is likely to have a lower impact on B&M because it sources products directly from Far East suppliers, which will not be subject to any hikes in costs affecting EU imports. Morrisons’ vertical supply chain sets it apart from much larger competitors and having a large supplier and manufacturing base in the UK, and good relationships with those suppliers built up over many years, will be a key advantage SCS pays suppliers in sterling so will be less impacted by currency fluctuations. It is also the main business for many of its suppliers, so enjoys greater leverage and the nature of products means it can more easily build up a stock-pile of items. Only 27% of Next’s production comes from outside the EU. Chairman Lord Wolfson has previously outlined his belief that port delays and organisational inability to cope with changes to the current agreement pose one of the biggest risk factors to the retailer and that even a move to a new deal would see an initial negative effect during an adjustment period before levelling out over time. Carpetright has a sizable European business and a key assumption underpinning its plans is to be able to continue trading and sourcing freely with the EU, making any obstructions potentially disastrous. Although John Lewis has an international business that may benefit from a weakened pound making exports cheaper, additional import costs facing its central UK business will offset any advantages.
Morrisons
Lower
ScS
Lower
Next
Higher
Carpetright
Higher
John Lewis
Higher
The pandemic has shown the flexibility and speed with which UK business can adapt to supply chain shocks and these characteristics will likely be required again as businesses adjust to the changing environment. Larger stock buffers will frequently be required and, where costs are increased, serious consideration will have to be given as to how to mitigate these and/or whether they can be passed on to shoppers without further damaging what is already likely to be weak demand. At least some inflationary pressure seems inevitable, even if not on all classes of goods. In the medium to long term we are likely to see the government encouraging on-shoring and pushing the credentials of suppliers in countries in which it is keen to do more trade, such as China, the US and Commonwealth companies. There may even be incentives and administrative fast tracking introduced to push this, although much will also depend on the political landscapes in these other nations.
Although consumers often cite a preference for home grown products, in reality purchase decisions usually come back to value and quality, with country of origin a secondary factor at best. Retailers will be looking at how they can pivot to suppliers which offer these characteristics, albeit they will also be highly wary about only working with partners that can meet minimum standards regarding ethical behaviour, supply chain security and environmental impact. Another long-term Brexit related consideration for retailers will be what replaces the current freedom of movement for workers. There were over 170,000 EU nationals working across the retail industry at the time of the referendum in 2016, with the BRCWorkforce survey indicating certain geographies, predominantly London and the south, are particularly reliant on EU workers, with distribution employing a higher number of EU nationals than retail stores. If new immigration restrictions reduce this workforce, retailers may have to look at recruiting more aggressively, paying higher wages and making more use of technology to prevent disruption to their businesses.
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