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Brexit won't damage growth, but more high street closures to come

Retailers are alive to the new challenges posed by Brexit, but optimistic that they can continue to see respectable growth.
perran jervis ,
head of retail, TLT

An overwhelming majority of the UK's top 100 retailers (68%) do not believe that Brexit will weaken their growth prospects according to the TLT and Conlumino Retail Growth survey 2016.

Average growth expectations are however down from 3.5% to 3%, in what is the first comparison of retailer sentiment from before and after the Brexit vote.

But although Brexit appears not to have triggered a wide reassessment of economic prospects, the high street does face more store closures with retailers expecting to close 4,600 stores over the coming year, compared to 3,700 before the vote.

Nearly 40% of those store closures are expected to be from fashion retailers, one of the sectors most affected by the growth in online commerce.

Commenting on the survey Perran Jervis, Head of Retail at UK law firm TLT, said:

"Brexit has not blown retailers' growth prospects significantly off course in the three months since the vote. But, it is adding new pressures to those that retailers already face in a changing market.

"Inflation, for example, is now viewed as a bigger risk to consumer spending in the coming year than before the poll (50% from 15%). This sits alongside the continued challenge of home-grown policies like the National Living Wage and long-term structural changes triggered by the relentless growth in online retail.

"Store closures are clearly a challenge for the high street but this is not necessarily a sign of distress or a direct result of Brexit. Instead, this is likely evidence of retailers' investments tracking consumer demand for different ways of shopping through on-line, mobile, home delivery and click & collect."

The research also found that a significant proportion of retailers expect their supply chain costs to rise (38%) post Brexit. Similarly, whereas how to manage online returns was the biggest supply chain concern before the vote, it is now concerns about changing costs such as FX rates.

Infographic of post Brexit retail challenges

There is also a hardened expectation that exporting will be tougher (74% from 67%) in a post-EU trading world and that the cost of imports will rise (78%, previously 54%). Concerns about recruitment have also risen (52% from 48%).

In response to this, a large number of retailers plan to manage any additional costs by putting prices up (37%), although almost half (47%) plan to keep prices about the same. Retailers will also look to reduce costs within their supply chain by reviewing currency hedging arrangements (69%), changing suppliers (55%) and sourcing supplies from different countries (51%). Nearly a quarter (22%) expect to bring more production back to the UK.

Brexit has not however accelerated a predicted small decline in job opportunities, with just under half still reporting that they plan to reduce staff numbers (41%, previously 40%) and around a third still planning to increase staff numbers (32%, previously 34%).

Unexpectedly, economic uncertainty in the UK, EU and globally have decreased as a challenge for those retailers looking to grow via acquisition post Brexit. Global political instability and turbulent financial markets have however increased.

In a further sign of how retailers are brushing off frequently expressed concerns about Brexit, only two per cent thought it would damage the image of British businesses abroad.

Perran Jervis, Head of Retail at UK law firm TLT, said:

“The findings suggest that retailers are alive to the new challenges posed by Brexit, but optimistic that they can continue to see respectable growth. Views about the fundamental uncertainties caused by changing shopping habits remain unaltered; and the steps necessary to deal with them are still the primary focus.

"Retail is often viewed as a bellwether for consumer confidence, so it is significant that the biggest retailers are taking a proportionate view of the potential for a fundamental change in our relationship with the EU."

Request your copy of TLT's Retail Growth Strategies Report 2016.

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