It’s no secret that most people have an opinion on June’s referendum. Although since the result, the fact that the UK decided to leave the European Union, hasn’t been out of the news, most people are still thoroughly confused about what it means.
We’ve seen the pound fall and a change of management in Downing Street, and we see daily reports of doom and gloom when it comes to the economy, but are businesses feeling the effects yet?
I asked a number of UK business owners about what effects the Brexit vote has had on their business.
Sarah Price is a Notting Hill based stylist who wardrobe manages a number of celebrities, female equity partners and royals in London has turned her hand to an entrepreneurial venture and just launched a brand new product called the Shimmy She had the following to say about the effects on business:
As we manufacture in Portugal and therefore in EU, the exchange rate meant we had to pay above what we had speculated and budgeted for post the Brexit currency fluctuation, leaving us a little stung budget wise as a small business in the short term.
In the long run it is hard for small businesses to know what Brexit will actually mean for us until we understand the import / export and trade terms we will have with Europe. It is too difficult to know what countries will be the best option to manufacture in and fulfil internationally from. It is hard to know what is best for small manufacturing businesses until then.
Another clothing business, milliner Misa Harada, also had her say.
Brexit has obviously made our currency weaker. I was hoping that this would encourage our sales abroad as 80% of our sales are now oversea. However, the week pound didnt not lead to a more sales for our SS17 sales, in fact our sales were down compare to the season before.
I found that most of our buyers became very cautious of buying as worldwide economy and currency became very unsettling.
All our hats are blocked hand finished in the UK, so hopefully we will see the positive side of British made products to come.
The following input comes from Philip Marsh, Managing Director of Chatham, a British footwear brand based in Exeter, Devon.
June’s Brexit has had its ups sides and down sides for all business. For Chatham on the down side, the majority of our product materials are bought in USD and therefore the weakening GBP has meant that realistically, prices should be increased by around 20%. However, in my opinion the market cannot take this kind of price rise, so a smaller price rise and reducing our company’s margin is the way forward. On the positive side the devaluation of the GBP has seen a growth in our export sales, with new markets such as Singapore, America, Japan and China all showing interest in our brand, and we only see this increasing over the coming months.
The only thing that has been unexpected is the devaluation of the GBP against the USD, and that the fact there has been so little recovery – even with the election in the USA and the fact the Trump has been elected.
In the hair industry, we spoke to Shawn Frazier, who’s the business development manager for extension manufacturer Tatiana Karelina.
Immediate impact was fall in GBP/USD. (Negative)
· Almost all hair purchase and free products we give away (branded bags, brushes, umbrellas) are denominated in USD.
Other medium term consideration is impact recessionary impact if Banks moved jobs, property prices fall and consumer spending on luxury items falls. Currently we assign a 25% chance this happens but something we are concerned with.
We have refused to raise prices to pass on higher input costs to our client and we are not backing away from providing the free ancillary products and consequently We looked at the fall in GBP impetus for us to become more efficient and competitive. We have:
1) Started to colour and process raw hair in house. We have set up a workshop in Manchester. This project is in its infancy but once up and running it will allow us to recoup the higher costs resulting from a weaker GBP.
2) Opening a salon in LA. While this was always part of the plan this has been accelerated to provide us with a US dollar hedge and well as a hedge should there be a slow down in consumer luxury spending. By earning US dollars in LA we remove the GBP currency risk from our business (although we add USD exposure as sales will be more than USD cost of hair) and having a salon in a high profile market like LA will offset any potential slow down in UK.
I then asked Angela Sprang, Managing Director of June Medical, a couple of questions about the effects on her business. When asked about whether the referendum has had an effect, she responded:
Despite the voices saying it will take a long time before we can fully see the effect on businesses in the UK, Brexit has already had a big impact on my company.
We have already suffered setbacks. A recent example was a manufacturing partner wanting to renegotiate the deal on the table by changing their selling currency from Euro to Sterling, putting all fluctuation risk on us so I walked away from the deal.
We have employees who do not know if they can stay in the UK. We have suppliers and customers in the Single Market, and the uncertainty of our future collaboration status has altered our stance in negotiations. Few suppliers are willing to sign a three year contract on maintaining regulatory files for products under our distribution when nobody knows what that regulatory file will look like.
Instead of moving into bigger premises in Buckinghamshire, we are planning to move our back office and marketing operations to Ireland where we have just initiated recruitment. The current uncertainty simply isn’t good enough as a foundation to make lasting plans on. We will continue our tremendous growth, and we will do our very best to serve the UK market, but we will have to wait and see what the cost of business will actually be before we make any further commitments.
Have you made any big changes to handle these effects?
The short term strategy of internal training, customer communication and user meetings isn’t changing. Long-term, we are reducing our investment in UK growth and are looking to diversify geographically, increasing funding for international establishment, speeding up plans to incorporate in Ireland and Sweden. We’re also reviewing existing contracts in terms of risk.
In addition we are negotiating new supplier contracts in GBP to minimise risk of currency fluctuations (we sell with fixed prices into the NHS so change in purchase price is challenging to our profitability).
In conclusion, the effect Brexit has had on the value of the pound has already had a huge effect on a number of different businesses in the UK. However, although the negatives are far outweighing the positives, it’s not all doom and gloom and businesses are adapting to the challenges that Brexit brings.