Jon Copestake, chief retail and consumer goods analyst, lead analyst – data and research at the Economist Intelligence Unit, considers the impact of the Brexit votie on retail
“Brexit has already caused a significant shock in retail markets with the share prices of retailers such as M&S, Tesco and Sainsbury’s initially falling by more than 10% before recovering slightly.
“While the market panic will be relatively short-lived there will follow a period of sustained uncertainty which has been exacerbated by David Cameron’s resignation. From a demand point of view this means that retail sales will decline in the short term. The sales growth already achieved in 2016 will be pegged back for the rest of the year as consumers retrench and consolidate their expenditure. A weaker pound will push up prices while uncertainty during the negotiating period will weigh on household spending and retailer balance sheets.
“Worse is likely to come in 2017 when retail sales volumes could decline by over 3% as the economy falls into recession and uncertainty mounts, especially as higher import prices also act to depress demand. A weak sales environment will only be one of a number of challenges for retailers though. As consumers rein in spending retailers will be scrambling to renegotiate agreements with suppliers and reassess the regulatory environment in which they operate. Other factors such as exclusion from the Common Agricultural Policy and Digital Single Market will have both ramifications for retail supply and for cross-border trade with EU markets.
“Finally there are workforce implications which may prove difficult for retailers to navigate. Oxford University’s Migration Observatory there are 442,000 EU citizens employed by the UK retail, hotel and restaurant sector making up almost 8% of its workforce. If visa requirements come into force then many may have to leave. Although the leave campaign can argue that this will create jobs for UK citizens the scale of switching staff would be costly and difficult to manage.
“For retailers all of these complications will add to their cost base, during a period when revenue streams are curtailed by weak consumer sentiment. Something will have to give, meaning a combination of rising prices, lower profitability, corporate austerity, job cuts and, in some cases, bankruptcy. While 52% of the British electorate will be jubilant today there are likely to be few in retail that share this view.”