As a no-deal Brexit becomes a bigger possibility, top fashion players are bracing for major impact.
The U.K. government said today it is doubling spending on a no-deal Brexit plan, a sign that Prime Minister Boris Johnson is serious about leaving the European Union by the end of October. As anxiety continues to rise, the British pound also dropped to a 30-month low.
The British luxury industry is worth $58.5 billion per year to the country’s economy. However, according to a report commissioned by Walpole (the official body representing the industry), a no-deal Brexit could translate into a loss of $8.3 billion a year for the British economy.
Britain exports around 80 percent of what it produces, and the potential losses could accrue without the same market access to Europe and potential new tariffs. “The message Boris Johnson has given us is that we need to be ready for no deal. It could not be clearer,” Walpole CEO Helen Brocklebank said. “Although we need to hope for the best, we have to prepare for the worst.”
On Monday, the Confederation of British Industry (CBI) issued 200 recommendations for firms seeking to prepare.
Now some companies are looking to take control of European production, stockpile materials and get up to speed on customs requirements. but there is no one-size-fits-all strategy.
This month, Manolo Blahnik announced its acquisition of Italian women’s shoe manufacturer Calzaturificio Re Marcello. CEO Kristina Blahnik cited the move as “providing greater creative and operational flexibility for the future of our business.”
Stockpiling raw materials could benefit companies with U.K. production, according to Church’s CEO Anthony Romano. While leathers are sourced from continental European tanneries, the Prada-owned British heritage brand owns its factory in Northampton, and Europe accounts for 40% of its business.
Romano also said currency hedging and moving finished product to Europe are two other potential solutions. “There are still many unknowns, and it is difficult to be fully prepared,” he said.
Most U.K.-based luxury firms, however, have Italian production. Rupert Sanderson, for example, ships directly from its Italian factory and pays European Union export duties. Commercial director Andrew Stewart said his main concern is duties.
“Being a registered British company, it’s still not clear how the duties will play out. Should receiving countries, such as the U.S., and EMEA and APAC regions apply significantly higher duties, this would be catastrophic to the business as it would deplete our margins and could make our products less competitive,”he said.
Stewart said issues might also arise regarding the freedom to move around Europe with samples. “I come to Paris six times a year for showrooms and ship via DHL,” he said. “We don’t currently need any documentation or incur any added costs, but if we have to go back to using carnets (merchandising passports), it won’t be so easy.”
Benjamin Keisner, sales director of UK-based Freight Brokers Ltd., agreed that movement of goods is critical. (Freight Brokers specializes in sending fashion samples between the UK and factories worldwide world via DHL.)
“Our biggest concern is about shipments [traveling] by road. A major backlog could add 10 to 15 days on top,” he said.
In terms of applicable duties, bigger brands will no doubt absorb such costs, he said, but smaller ones will have to pass these onto their customers, resulting in slightly higher prices.
Brocklebank said another issue that could arise is centered around immigration, and free movement of workforce.
“British brands work with a multinational talent pool,” she said. “We have made submissions to the migration commission regarding the definition of ‘skilled worker’ across the various companies we represent.”
She stressed that a no-deal outcome is not just a British issue but a pan-European one, pointing out also that London is the fifth biggest market for mainland European shoppers purchasing European goods. “It’s a challenge for everyone,” she said. “The onus is not just on the British government but also on Europe to protect their own businesses.”