Brexit tears fashion results apart in the UK

Fashion ‘unravels’ in the United Kingdom. British fashion market keeps its international power despite the threat of Brexit, but local and international operators are suspiciously observing the evolution of relations between the unpredictable Boris Johnson and his interlocutors in the European Union. While British brands fear the loss of foreign competitiveness, international groups see their assets in danger in London.

With a population of 61.1 million, the United Kingdom is one of the priority destinations of fashion companies around the world. Fashion consumption in the United Kingdom is around 55.2 billion euros, overcoming Germany but far from France, where it reaches 45.1 billion.

It is estimated that each British spends about 848 euros per year on fashion, but this value could go down. According to the latest available data, retail sales of clothing and footwear in the United Kingdom registered an average drop of 9.9% in May, June and July, the highest among the main consumer categories.

Prices are below the European Union average in fashion. Specifically, according to Eurostat, fashion in the United Kingdom is 7.3% cheaper than the average of the European Union.  

The United Kingdom has three cities in the Hot Retail Cities ranking, which analyzes the world’s 100 most attractive cities for retail: London, Birmingham and Manchester, which benefit from high household consumption and a strong and stable economy, at least so far.  

United Kingdom is 7.3% cheaper in fashion than the entire European Union

According to MasterCard’s Global Destination Cities Index, London ranked third amongst the most visited cities in the world in 2018, with a total of 19.1 million international visitors. However, the figure has fallen compared to the previous year, when London received 19.8 million tourists.

In 2018, total expenditure of international tourists stood at 16.4 billion dollars in London, only exceeded by the expenditure of foreign visitors in cities such as Dubai, Mecca, Bangkok or Singapore.

If New York is the fashion capital of the world, London is the European one. Its economy, population, tourism and its worldwide projection make the British capital the object of desire for international fashion. Beyond the capital and its area of ​​influence, fashion consumption is governed by price and focuses on local operators.

“The problem in the United Kingdom is that the country is London”, says a global fashion retailer, while explaining that when a brand lands in the country, it must make the investment calculations taking into account that it will hardly expand beyond the capital. “You have to make a global account for a single city”, he adds.

Fashion industry represents approximately 5% of the country’s economy

Costs are especially high in rental. In fact, last August some of the largest retailers in the country demanded the government an urgent reform of the commercial rate system, which currently taxes companies based on the buildings they occupy.

However, to most brands results have added up. Why? London is a springboard to the rest of the world, especially the Middle East and Eastern Europe, thanks to tourism it receives and the affinity of fashion distributing groups with this market.

Typically, brands use London stores as a benchmark to get franchises in markets such as the Middle East, since it is considered that if a brand is present in this city, it is strong enough to expand outside as well.

Brexit could end up affecting the relationship of the United Kingdom with the rest of the world and its positioning as a hub of retail in Europe, so that investments made in the country by global retailers would be jeopardized, as well as the contribution of this sector to the country’s economy.

Retail is the largest employer in the United Kingdom, employing around three million people. The industry represents approximately 5% of the country’s economy but pays about 10% of all trade tariffs and 25% of commercial taxes.

32 billion pounds and 890,000 jobs

Due to its tradition as an industrial pole and the impact of its brands, fashion is a relevant economic sector for the United Kingdom. In addition, the sector has seen the rise of ecommerce giants such as Asos or Net-à-Porter. According to the British Fashion Council, fashion contributes 32 billion pounds per year to the British economy, while employing 890,000 people, almost the same volume as the financial sector.

Although the consequences of Brexit are still unknown, economists have begun to make their calculations in different sectors. According to Retail Economics, in the case of a hard Brexit the trade agreements would disappear, so that designers, retailers and manufacturers of raw materials should start paying to sell to the countries of the European Union, and vice versa. Retail Economics sets tariffs at around 11%, that is, more than 1,100 pounds each year.

The British Fashion Council has also made its calculations. A Brexit without agreement would cost the British fashion industry between 850 million and 900 million pounds (about 1.1 billion dollars) as a result of the adoption of the rules of the World Trade Organization (WTO), but also other elements such as the reduction of store staff, which could raise wages.

The British entity has already begun to demand measures to ensure that British fashion continues to be competitive outside its borders if the country leaves the European Union. “We urge the Government to seek a deal with the European Union that would guarantee the healthy and steady growth of the fashion industry”, said the British Fashion Council earlier this month.

British companies must increase their supply in proximity to promot local industry

Around eighty fashion tariff lines will be subject to import taxes of between 8% and 12% in case of a hard Brexit. According to the British Fashion Council threads and fabrics will be tax free for a year, but this tariff increase will increase imports, making it more difficult for international retailers to compete in the country.

In the same way that happens in Brazil (one of the most complex countries for fashion due to its high import tariffs), British companies must increase their supply in proximity, promoting local industry, yes, but also complicating their competitiveness against giants of fashion.

Exports will be equally affected. In the event of an unpaid exit from the European Union, the United Kingdom would return to the WTO rules, which would represent a tariff of between 6% and 12% on the exported product, a cost that companies in the sector should reflect in the final price or in its margins. Fluctuation of the pound in the currency market could also impact prices.

British clothing exports have not suffered, yet. According to the latest available data, in 2017, sales of clothing products abroad stood at 8.3 billion dollars, 3.5% more than in the previous year. The rise in 2017 was preceded by two consecutive falls, from the maximum historical value of 8.4 billion dollars in 2014.