Retail and consumer firms prepare for post-Brexit downturn, ECI Partners’ 2016 Growth Survey shows

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ECI Partners’ 2016 Growth Survey, the only annual survey in the UK focused solely on high growth companies, reveals today that Britain’s vote to leave the European Union has hit sentiment across the retail and consumer sector with firms slashing their forecasts and preparing for an economic downturn.

What do growth companies in the retail and consumer sector fear?

Last year’s ECI Growth Survey revealed that these companies overwhelmingly backed Britain’s membership of the EU, with 91% saying they were against Brexit. One year on, 75% of retail and consumer firms say they now fear an economic downturn with 58% admitting that Brexit has negatively affected their forecasts. Their outlook on the economy is amongst the worst across all the sectors that were surveyed, with only healthcare companies feeling more negative (79%), and compares against a national average of 69%.

Access to finance worsens

Companies operating in the sector also say that access to finance has sharply deteriorated, with 44% saying it is ‘difficult’ or ‘very difficult’, the highest reading since 2013 and up from 28% last year.  However this is below the national average of 51%, demonstrating that retail and consumer companies are less badly affected than companies in other sectors.

What they want

Although the UK Government is yet to trigger Article 50 of the Lisbon Treaty, retail and consumer companies make it overwhelmingly clear that they see access to the Single Market as a major priority with 86% placing it at the top of their negotiation wish list, compared to 82% nationally. The sector is  heavily reliant on workers from across the EU, which perhaps explains why a strong majority of consumer and retail respondents also see access to Europe’s workforce as a top priority: (64% vs. 58% nationally).

Showing resilience

Consumer firms are showing resilience in the face of these Brexit challenges. 34% plan to increase investment and hiring, above the national average (31%). They are also confident they can continue to grow revenues, with 58% anticipating higher turnover over the next 12 months, although this is below a national average of 66%. 38% expect double digit growth, again below the national average (43%).

CBI director-general Carolyn Fairbairn said: “The latest ECI Partners growth survey provides a timely reminder of what growth companies need to succeed. As the UK seeks to forge a new relationship with the world, raising the productivity of our economy has never been more important. It is productivity growth that will help spread prosperity outside London and the South East and drive the UK economy through the uncertain times ahead. The success of the UK’s fastest growing firms will be vital in achieving this goal.

“We face challenging times ahead – but there are opportunities as well. The UK remains a vibrant and open nation, and one of the best countries in the world to do business. Now is the time to take advantage of opportunities for productivity growth to make it even better.”

ECI partner Chris Watt said: “Economists have been very gloomy about our economic prospects post the Brexit referendum, so it is heartening to see such grit and resilience coming from Britain’s high growth companies. Our seventh annual growth survey shows that consumer businesses will continue to invest and hire in order to grow, an important commitment given their contribution to the UK economy and to job creation. The message is clear: growth companies will do their bit to help our economy to continue thriving. Now it’s up to the Government to create and sustain the conditions necessary for this to happen.”

Sean Ramsden, CEO of British food wholesaler Ramsden International, said: “We are an exporter so we have benefitted from the fall in the value of sterling. Our hope is that post-Brexit, Britain will be able to negotiate better trade deals with countries like Canada and Australia. We are seeing demand grow at a faster rate in markets outside Europe”

Other UK survey respondents:

Louis Rix, founder of Manchester-based Carfinance247, said: “Lower interest rates benefit us as they have a big impact on disposable incomes, which means people are more likely to want to buy cars. We have no plans to cut investment, but we’ll certainly be more cautious over the coming months.”

Jonathan Elliott, CEO of price comparison website Make It Cheaper, said: “I wanted to remain but the decision has been made and we have to be careful not to talk ourselves into recession. I think there’s a lot of EU regulation out there that may have originally been well intended but has been badly executed. It would be good to see the removal of some unnecessary red tape.”

Guy Mucklow, founder of PCA Predict, an address verification service for e-commerce, said: “We will press ahead with plans to invest in the US and Canada, despite Britain’s decision to leave the EU. However, the fall in the value of sterling since the referendum has added to the costs of funding our US business.

“Another consequence is the likelihood of lower interest rates over the long term and even the possibility of having to pay banks to deposit money with them. It could become a significant cost centre.”

Key findings across the country:

Access to Single Market:

  • Continued access to the European Union’s Single Market is the top priority for Britain’s high growth companies, cited by 82% of respondents
  • By region, this is the most important issue for companies in Scotland (cited by 100% of respondents), in the North East (88%) and in the South East (86%)
  • By sector, consumer companies (86%)and business services (85%) cite this as their top priority

Access to EU workforce:

  • Continued access to the European Union’s workforce is the second priority for Britain’s high growth companies, cited by 58% of respondents
  • By region, this is cited by 65% of companies in the Midlands, and 64% of London businesses
  • By sector, the companies most likely to cite this as a priority are healthcare firms (73%) and consumer businesses (64%)

What growth companies fear:

  • An economic downturn is the biggest fear for growth companies, cited by 69% of respondents
  • By region, companies in the South East (73%) and London (72%) are most fearful about the economy
  • By sector, healthcare companies (79%) and consumer companies (72%)are most fearful about the economy

Access to finance:

  • Overall, growth companies say access to finance is deteriorating with 51% expecting it will be difficult or very difficult, up from just 22% last year
  • By region, Scottish companies are the most bearish about access to finance with 83% expecting it will be difficult/very difficult, companies in the South West are the most bullish with just 37% expecting it will be difficult/very difficult
  • By sector, financial services companies are the most bearish at 69%, consumer companies are the most bullish at 44%

Skills shortages:

  • A strong majority of high growth companies continue to suffer from skills shortages with 77% citing some impact, though down from 91% last year. The most cited gaps are in Sales & Marketing and IT & Technology
  • By region, companies in the South West are most likely to say they are affected by skills shortages (93%) followed by companies in the South East (84%)
  • By sector,companies in healthcare (86%) and consumer (85%) sectors are the most affected

Revenue expectations:

  • 67% of high growth companies surveyed expect to grow revenues, 43% expect double digit growth
  • Companies in the Midlands (50% expect double digit growth)  and TMT  (57% expecting double digit growth) are most bullish
  • TMT companies are the most bullish with 57% expecting double digit growth; by contrast financial services are the most bearish, with just 33% expecting double digit growth and consumer companies 38%

Hiring & investment intentions: 

  • 31% of high growth companies surveyed expect to increase investment and hiring over the next 12 months, against 19% who plan to freeze and just 6% who plan to cut
  • Companies in the South East are the most bullish: 36% plan an increase, Scotland is the most bearish with no companies planning an increase and 50% planning a freeze in investment and hiring
  • TMT companies are the most bullish with 46% planning an increase, and financial services firms are the most bearish with 32% planning a freeze. 34% of consumer companiesplan to increase hiring and spending.