The overwhelming sentiment in Britain last Friday morning was one of shock. The press, the pundits, the financial forecasters and bookmakers all thought we were going to remain. As the dust settles, and the months of power struggles and planning begin, we review what we think Brexit could mean for British retailers.
For now, we’re going to focus on the one thing that we know will prevail over the next three months - that is increased uncertainty and a devalued pound. For many, uncertainty prompts a delay in both action and investment, but we believe that the best response to tightening demand and cost pressures is to manage your cost base better and to pursue new sales channels.
A bit of economics
Devaluation of sterling will make imports more expensive and exports cheaper. Therefore, pending any pre-agreed payment terms at fixed exchange rates, retailers will have to pay more for their inputs, increasing costs (pending terms of currency of contracts owed). That said, for retailers and brands that have established export channels, the devalued pound should drive additional volume sales of goods.
What can retailers do?
Whilst uncertainty prevails, we'd recommend that British brands and retailers consider adopting some of the short-term and longer term tactics outlined below.
In the short term
- Check forecast demand and manage buy strictly to avoid over-stock
- Review how you can implement or bootstrap “one view of stock” to open up individual store stock to online demand and vice-versa. Even adding the stock of one flagship can drive significant sell-through at full price. Capturing demand at full price will be critical
- Review your cost base; are there expenses that can be tightened or managed?
- As much as possible, drive promotional activity which is non-diluting, such as:
- Targeted personalisation through data mining
- In-store VIP events
- Basket builders such as "Spend £300 and get item x for free"
- For high ticket price retailers, where brand applicable, investigate the ability to add a credit solution to your offer
- Consider whether you could establish - or pursue more aggressively - any international channels
In the medium term
Looking further forward, consider more permanent and robust opportunities, such as:
- Implementing a fully fledged order management system that enables full omni-channel
- Moving product sourcing and any sizeable cost elements back to the UK
- Establishing and growing new international markets
The next six months will be challenging. Faced with rising costs, wavering demand and accelerated promotions, brands and retailers must strengthen their position now to be the winners of tomorrow. By coming up with a well-thought-out plan and adopting some of the tactics outlined above, you'll be well placed to do just that.