While there is still much uncertainty about the long-term impact of the United Kingdom’s impending separation from the European Union, Brexit is having one short-term positive effect: The London retail market is booming.
That’s because the June vote sent sterling plummeting against the dollar and the euro — and the low pound is fueling a spending spree by savvy international customers profiting from the favorable exchange rate.
For example, shoppers looking to buy Jimmy Choo’s lace-up Deon ankle boot would pay 695 pounds in the U.K., or $868, at current exchange. In the U.S., the same style would be priced at $1,150, about $282 more. (Prices were taken from the brand’s U.S. and U.K. websites and exchange rates were current as of Tuesday.)
The rush is also good news for major storeowners heading into the holiday season. According to New West End Co.’s annual Christmas tracker report, retailers along London’s busiest streets in the heart of the West End are forecasted to report a 1.6 percent increase in sales during the six weeks leading up to Christmas.
“We are entering our most critical trading period in a very good position, with strong spend growth from both our domestic and international customers,” said Sue West, director of operations at Selfridges.
“Everybody has seen an upswing, mostly from foreign tourism,” added Nicholas Kirkwood, the LVMH-owned brand with a store on Mount Street in Mayfair.
Perhaps the highest-profile Brexit success story is Burberry, where sales climbed 30 percent in the second quarter. CFO Carol Fairweather attributed the rise to favorable exchange rates. The sterling devaluation is on track to boost year-end profits by some $1.52 million.
Newcomers to the London market are also feeling bullish this season. “We have many international customers, and the feedback we have been receiving is that London has become more competitive,” said Ziad Matta, co-founder and co-CEO of Dubai’s luxury Boutique 1 Group. Matta launched his brand’s European flagship on London’s Sloane Street this summer, weeks after the referendum. Key footwear brands within the London buy include Paul Andrew and Malone Souliers.
However, despite the short-term benefits of a devalued sterling, there are concerns over higher export taxes in the long-term, plus the increased cost of raw materials sourced from abroad. “The effects of Brexit are still hard to gauge,” said Matta. “Will customs duty be levied on European goods imported and exported to the U.K.? This uncertainty makes it difficult to have clear visibility and plan ahead.”
Kirkwood is more optimistic. “There may be tariffs for importing,” he said, “but I have a feeling that we’ll end up with a very similar trade deal to what we had before.”
One thing’s for sure: British brands will certainly adjust prices in the seasons ahead as long as the pound remains weak.
“It’s exactly the same as the whole Marmite thing, but that happened sooner,” said Kirkwood, referring to Unilever raising prices to compensate for the shifting exchange rates. “It’s just for this season that items are cheaper, as they have already been bought and paid for before the pound decreased; it’s an artificial low.”
Other retailers such as MatchesFashion.com are just playing the wait-and-see game. “We believe it’s too early to speculate on the impact of the referendum, but we remain confident in the strength of our business’ geographical mix and our longstanding relationships with all global partner designers,” said a spokesperson for the online retailer.