The short and medium-term impact of Brexit on the Retail sector

Impact of Brexit on Retail sector

In the immediate aftermath of the Brexit vote, political uncertainty had led to a dampening of consumer confidence.

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  • In the immediate aftermath of the Brexit vote, political uncertainty had led to a dampening of consumer confidence
  • In the medium-term, as currency hedging unwinds, the cost of goods purchased overseas will effectively become more expensive. The debate for retailers will then be whether to increase prices or absorb the loss into margins
  • In the long-term, key considerations will be: the retail sector’s reliance on non-UK workers; trade deals, and the potential positive opportunities for retailers


Following the UK’s decision to leave the EU, British retailers and consumers undoubtedly face an unprecedented situation, one filled with uncertainty. 

Looking back to the day of the result itself (Friday 24 June 2016), in many ways the Brexit result was met with disbelief – not least of all by the retail industry. Martin Hayward, Founder of Hayward Strategy and Futures, noted that the combined might of the research industry failed to anticipate or predict the majority view of the British population, illustrating the level of surprise. 

James Knightley, Senior UK Economist at ING, noted that the overwhelming majority of surveys had suggested that British businesses had wanted the UK to stay a member of the EU. However, David McCorquodale, Head of Retail at KPMG, noted that many retail CEOs, particularly from the large national chains, had been careful not to take sides for fear of alienating their brand in such a divisive landscape. ‘After all retail, like democracy, is controlled by the people’, he added. 

Surprise aside and with the result of the EU referendum now unquestionable, what does this momentous decision mean for retail?The KPMG /IPSOS Retail Think Tank (RTT) met in July (Tuesday 12 July) to discuss the short and medium-term effects of Brexit on the Retail sector. Given the magnitude and unprecedented nature of Brexit, a number of considerations came to light but common themes arose. 

In the short-term, key themes discussed by the RTT included: a weaker pound, fragile consumer confidence and political uncertainty. Meanwhile, in the more medium-term, the prospect of higher tariffs with trade restrictions; a more limited labour supply, and how retailers could benefit from positive opportunities in light of Brexit, were on the minds of the RTT members. 


Immediate and short-term impact:

In the immediate aftermath of the Brexit vote, the RTT widely recognised that uncertainty – particularly political uncertainty - has led to a dampening of consumer confidence, the driver of the retail sector’s fortunes. 

Mike Watkins, Head of Retailer and Business Insight for Nielsen UK, stressed that the psychology of the consumer was critical, and collectively the RTT members agreed that this uncertainty wasn’t likely to be viewed favourably by consumers. For continued retail growth, consumers either need to ‘feel’ or ‘be’ better off, but in the face of this uncertainty this is unlikely, Mike Watkins added. 

While future retail consumption may waiver, several members of the RTT suggested that in the short-term pre-planned purchases, like holidays for example, were unlikely to change as consumers have already made the commitment. 

For retailers on the other hand, this political uncertainty was of equal concern, as Maureen Hinton at Verdict Retail added: “not only is it a drag on consumer confidence but also it prevents retailers making concrete business plans. Until they know how the UK government intends to tackle the issues around the exit from the EU, there is little retailers can do apart from consider every eventuality.”

Dr Tim Denison, Director of Retail Intelligence at IPSOS Retail Performance, suggested that the: “…sharp shock being felt following the Brexit decision [was] political rather than economic; [with] the fundamentals of the latter remain[ing] solid.” However, Nick Bubb, Retail Consultant, noted that: “the share prices of general retailers slumped in the immediate aftermath of the shock Brexit vote, as the City moved quickly and brutally to [factor in] a future UK recession and sustained sterling weakness.”

According to Jonathan De Mello, Head of Retail Consultancy at Harper Dennis Hobbs, retail real estate experienced a similar fate. He highlighted that the relatively illiquid nature of commercial real estate resulted in such funds coming under considerable pressure to be sold (both high street and mall), at a level significantly below their recent valuations. Concerns over whether this trend would extend to residential property was also flagged by other members. 

There was general consensus among the RTT that some specific retail industries were likely to be more affected by the vote to leave than others in the short-term. Nick Bubb flagged that the share prices of ‘big ticket’ related companies, those related to the housing market (like furniture retailers), as well as motor retailers, had been particularly hard hit post Brexit. “On the basis of historical precedents…this is where consumers will rein in their spending first, in response to heightened uncertainty and worsening outlook for jobs and house prices”, he said. 

Martin Newman, CEO at Practicology, reinforced this theme noting that fashion was already on sale prior to Brexit, but the move towards promotional activity now appears to have spread to most of the high street. “Fashion retailers are most at risk due to the fact that they buy most of their goods overseas and pay in dollars, meaning they will be significantly impacted by increased import costs due to the rapidly failing value of the pound”, he added.

While specific retailers may have experienced the immediate impact of Brexit more than others, it was widely suggested that in the short-term there are all sorts of reasons why consumers could simply keep on spending. Nevertheless, Dr Tim Denison flagged the need for timely promotions to encourage consumers to ride out the uncertainty. 


Medium-term impact

As briefly eluded to, less favourable exchange rates for British retailers were a consideration for the RTT.  James Sawley, Head of Retail & Leisure at HSBC noted that: “general retailers have a significant requirement for Dollars either directly or indirectly via wholesalers and distributers further down the supply chain.”

While the retail industry may not consider this an immediate worry, as most retailers hedge their currency exposure (typically between 9 to 18 months), the cost of goods purchased overseas will effectively become more expensive as hedging unwinds. (Though this is of course based on the assumption sterling continues to be devalued.)  

As a result, the RTT agreed that some of the burden created by less favourable exchange rates may eventually need to be shared with consumers by way of increased prices. However, the debate then moves to whether this is possible in a price conscious, competitive environment, or whether retailers may have to absorb the loss into margins. For smaller retailers, who are unlikely to have hedged against such a scenario, this burden will be particularly hard to bare.

Whilst hedging for less favourable exchange rates may assist in delaying price rises 9 – 18 months, Maureen Hinton suggested that: “we are likely to see some rises in food [prices] before then, as the cost of ingredients increases for food manufacture. However, price competition among major supermarkets will dampen [such price rises].” 

Following on from the latter point, Nick Bubb suggested that: “this is not such a bad scenario for the beleaguered food retail industry, which is currently bedevilled by food price deflation, but has historically enjoyed periods of food inflation. However, the concern is that the rise of the discounters and the surplus superstore capacity in the market, as online grocery shopping and convenience store shopping gain ever more traction, is causing deep-seated structural change in the industry.”

With respect to margins, several members of the RTT highlighted that the combination of higher import costs due to the decline in the value of the sterling, coupled with the implementation of the National Living Wage, would result in increased cost pressure on retailers. Jonathan De Mello noted that this could result in domestic retailers halting or slowing expansion within the UK, however other members of the RTT suggested that pressure on margins could provide a catalyst for accelerated efficiencies within the retail sector. 


Looking ahead

As noted by many members of the RTT, what we are witnessing in the immediate aftermath of the vote comes ahead of the UK having even triggered Article 50. Details of our exit will only become clearer following negotiations and as one RTT member suggested, it is yet to be determined ‘whether the UK can achieve an amicable divorce from the EU’. 

With this in mind, the timescales relating to Brexit were considered to be as uncertain as the outcome of negotiations themselves, however the medium-term could be considered to denote the period between the end of this year and the point at which negotiations have completed, while the long-term refers to the period beyond. 

A key long-run consideration identified by the RTT was the retail sector’s reliance on non-UK workers. As there will be two year consultation following the activation of Article 50, nothing is yet set in stone. However, the RTT agreed that growth in the retail sector was not dependent on cheap labour, and there was widespread agreement that it was unlikely migration would be stopped completely, but rather restrained if anything. However, it was noted that retail had fished in the wider European market for specialists in data, analytics and digital, and should restrictions be applied, the talent pool would be smaller for these specialisms.  

Trade deals are naturally another key consideration, though David McCorquodale highlighted that he’d find it hard to believe that the UK would simply “pull up the drawbridge to trade or that our farmers [would] not be supported to produce our food.” He commented: “consumers will still want to shop and retailers will still excel in meeting demand. Already, low growth, increased costs, changing technologies, productivity and efficiency have all been driving and influencing retail strategy, and this is likely to accelerate over the next few years.” 

However, Maureen Hinton noted: “while the UK can gain from freer access to global markets, until these deals have been established, UK retail is set for a period of volatility.” 

Despite this, the RTT members veered away from focusing exclusively on a negative outlook, suggesting that Brexit could open up positive opportunities for retailers. Mike Watkins proposed that this was a time for retailers to ‘adapt or die’, noting that shopping behaviour has already changed. James Sawley highlighted that: “with cost pressures mounting in areas such as staffing, transport and energy costs, businesses have tough decisions to make which effect both customers and shareholders. [However,] retailers with healthy balance sheets and healthy margins can afford to play the wait and see game, keeping prices the same in order to protect or gain market share”.

Furthermore, Martin Hayward pointed out that the vote to leave could increase the importance of provenance and “the opportunity, and legal permission, to promote locally sourced goods over imports, adding extra impact to an already important trend in food and general retailing”. 

Martin Newman added that: “there is potential for retailers to see a spike in demand online from international customers who seek to take advantage of the weak pound.” UK luxury was identified as a key sector likely to benefit from this, and the RTT noted that the “British” brand also exports well. 

Nevertheless, a view shared by the RTT members was that British consumers will continue to shop and that there will be naturally be winning and losing retailers as the Brexit landscape begins to take shape. This process will take time, but as Martin Hayward stressed, details of the UK exit: “…will be slow to emerge and probably less dramatic than we have been led to believe in the heat of Project Fear”.



Members of the RTT are:

  • Nick Bubb – Retail Consultant
  • Dr. Tim Denison – Ipsos Retail Performance
  • Martin Hayward – Hayward Strategy and Futures
  • James Knightley – ING
  • James Sawley - HSBC
  • David McCorquodale – KPMG
  • Maureen Hinton – Verdict Retail
  • Mike Watkins – Nielsen UK
  • Martin Newman – Practicology
  • Jonathan De Mello - Harper Dennis Hobbs

The intellectual property within the RTT is jointly owned by KPMG ( and Ipsos Retail Performance.

First mentions of the Retail Think Tank should be as follows: the KPMG/Ipsos Retail Think Tank. The abbreviations Retail Think Tank and RTT are acceptable thereafter.

The RTT was founded by KPMG and Ipsos Retail Performance (formerly Synovate) in February 2006. It now meets quarterly to provide authoritative ‘thought leadership’ on matters affecting the retail industry. All outputs are consensual and arrived at by simple majority vote and moderated discussion. Quotes are individually credited.  The Retail Think Tank has been created because it is widely accepted that there are so many mixed messages from different data sources that it is difficult to establish with any certainty the true health and status of the sector.  The aim of the RTT is to provide the authoritative, credible and most trusted window on what is really happening in retail and to develop thought leadership on the key areas influencing the future of retailing in the UK. Its executive members have been rigorously selected from non-aligned disciplines to highlight issues, propose solutions, learn from the past, signpost the road ahead and put retail into its rightful context within the British social/economic matrix.

For media enquiries please contact:

Simon Wilson, PR Assistant Manager, KPMG UK LLP
T: +44 (0)207 311 6651 / +44 (0)778 537 3397


Max Bevis, Tank PR
T: +44 (0)1159 589 840


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