Amid speculation around how the European Union might punish the UK for voting to secede in the monumental June 23 Brexit vote, British consumers are already punishing UK retailers themselves. Shopping visits — or footfall — in the UK declined 2.8% in June from the previous. year. This decrease — the sharpest since February 2014 — seems to legitimize widespread concern about how weakened consumer confidence and the devalued British pound resulting from Brexit will hurt retailers.
Brexit’s impact on the footfall decline is indisputable: UK store visits increased 0.3% in May and 0.4% the first week of June before dropping 4.6% percent during the week of the EU referendum and 3.4% during the remainder of the month, despite the surge in summer sales by retailers.
Fortunately, Brexit’s impact on retailers won’t be entirely negative.
Brexit’s Short-Term Impact
It’s likely that UK-based retailers with a strong e-Commerce presence will overcome the loss in brick-and-mortar shoppers with significantly improved online sales. Consumers worldwide will capitalize on the weak British pound and leverage the pound’s favorable exchange rate against the euro and other currencies to secure bargains non UK-based retailers won’t be able to match. As a result, British e-Commerce sites will experience an increase in mobile search, traffic and purchases. This is likely to continue until the pound regains some of its value or more taxes, tariffs and EU trade limitations upon the UK are implemented.
On the other hand, because of these same macroeconomic factors, U.S.-based retailers should brace themselves for a potential short-term sales decline. U.S. retailers, who rely substantially on tourists shopping on their vacations in the U.S., won’t receive as much business from British tourists due to the weakened pound. Brexit isn’t entirely to blame, however; both the pound and the euro have been experiencing declining exchange rates against the U.S. dollar for years. Brexit and the fears surrounding it have just accelerated that trend.
The relative strength of the dollar will put pressure on the discretionary spending power of tourists visiting the U.S. from the UK and the Eurozone. As a result, U.S. retailers — especially those offering high ticket items and luxury merchandise — will suffer from a decline in tourist-generated business, particularly during the summer.
Brexit’s Long-Term Impact
The benefits UK retailers see in the immediate wake of Brexit may be short-lived. There is a good chance the EU will attempt to isolate the UK economically to deter other countries from pursuing their own exits. This would involve the EU imposing new taxes and tariffs on goods from the UK. That would not only impact UK businesses selling goods to EU consumers, but also retailers and manufacturers in the EU that rely on UK supplies to produce their own goods. Therefore, costs would increase for UK-based retailers as well as any businesses that utilize supplies from the UK. Unless consumer demand grows enough to warrant raised prices, the retailers will be the ones suffering the brunt of the taxes and tariffs.
Tourism and the ensuing tourist spending between the UK and EU will also be determined largely by the policies enacted around freedom of trade, as well as freedom of movement. When negotiations surrounding these policies begins, “everything will be on the table,” according to French Finance Minister Michel Sapin. As a result, tourism in each direction could either flourish or flounder, but regardless, both tourist spending and international trade rely on consumers on both sides regaining confidence in their economies and overcoming any post-Brexit animosity.
While European leaders argue over how to approach negotiations with post-Brexit Britain, there’s no way to gauge just how much the EU will punish the UK, and how those punishments will look in the form of taxes, tariffs and policies. Uncertainty around exchange rates and consumer confidence further adds to the cloudy situation. One thing we can be sure about, however, is that the retail industry — like the UK’s footfall — should expect some volatility.
Meyar Sheik is the CEO of Certona. He is a seasoned software industry executive with 26 years of experience. Since 2000, Sheik has been a web analytics pioneer working with some of the largest sites on the Internet such as Staples, ESPN, Fox, Sony, Best Buy, Disney, CBS and many other leading brands, in the areas of web analytics, personalization and real-time content optimization. Prior to Certona, he was the CMO and COO of web analytics leader, WebSideStory (now part of Omniture/Adobe).