Posted by Jasmine Mahboobani,
Contributing authors: Bharat Nahar
Has Debenhams been hit with the ‘Brexit effect’?
Amid the news that Debenhams’ shares have taken a major plunge in light of its fresh profit warning, we look at why a lot of the retail industry seems to be drowning at the moment.
According to the newly released figures from the British Retail Consortium (BRC) and KPMG, the UK’s retail sales have only experienced an increase of 0.5% in February 2019. Comparing this to the figures in February 2018, where retail sales had increased by 1.6%, this clearly shows quite a sharp plunge in consumer spending.
Whilst many may argue that the retail industry is experiencing this decline due to the phenomenon of online shopping, the figures show that even growth in online sales are considerably below the 12 month average. Looking at the figures for February 2019, online sales of non-food products increased by 5.4% compared to 6.5% in February 2018. It is true that if we compare the sales being made online versus those made in store, more people prefer to shop online. However, it is clear that there is an overall trend of decreasing retail sales both online and in store.
Is Brexit to blame for this? Well there is no hard, concrete evidence but industry experts have commented that the link does exist. Uncertainty in the government’s action plan going forward has fuelled the cautious approach being taken by the public in retail spending. And rightly so – without a strategy for how we will leave the EU on 29 March, many are justifiably worried about their jobs, standard of living and the law which will be implemented post–Brexit. Will businesses start moving out of London? Will the economy dip into another recession? These are all considerations which will no doubt be at the forefront of the minds of consumers when they make purchases. This theory fit s into what Esme Harwood (Director, Barclaycard) comments upon: discretionary expenditure has declined by a considerable amount.
However, it is worth noting that the grocery industry has not been vastly affected by Brexit, with industry experts commenting that there has been little change in the way people are shopping for food. This could be explained by the reports that people have begun to stockpile in preparation for a no deal Brexit, for fear that no trade agreement will be in place with the members of the EU. Indeed, Barclaycard’s collated figures show that 18% of UK residents have begun stockpiling on food to avoid being caught in any shortages that may occur post-Brexit. This stability, whilst heartening, is therefore the product of fear and whether it continues beyond Brexit remains to be seen, and is arguably largely dependent on our strategy going forward.
Suffice to say that what we need now is for a clear plan on Brexit in order to maintain certainty amongst the public and create some much needed stability amongst the retail industry. Whether the government is able to do this before Brexit claims Debenhams as its next casualty remains to be seen.
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