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Home / Business

Comment: How the great Brexit battle will ruin Christmas

By Andrea Felsted
Washington Post·
30 Nov, 2018 08:20 PM4 mins to read

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Brexit has a Christmas message for retailers: Bah, humbug. Photo / 123RF

Brexit has a Christmas message for retailers: Bah, humbug. Photo / 123RF

COMMENT: Brexit has a Christmas message for retailers: Bah, humbug.

Political turmoil over Britain's departure from the European Union looks set to darken the "golden quarter" which accounts for a large proportion of retailers' annual profits.

The timing couldn't be worse, as there is otherwise a lot of good news around for stores and shoppers alike. So what could have been a turbo-charged holiday season may now turn into a turkey.

Wages are growing faster than inflation, so consumers should have a little more money in their pockets.

Long-suffering clothing chains should be on track to get a break. There are no big technology products, such as a new iPhone, to suck spending away from apparel. Signs that demand for makeup is weakening may offer a similar boost.

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And there are some decent trends around to attract shoppers - animal print is still in vogue, and has got a bit more sparkly for the party season.

The carnage on the British high street has also begun to take capacity out of the market. That's welcome relief for those retailers that are left standing.

Analysts at GlobalData estimate that about £1.5 billion of consumer spending has been freed up across the whole of 2018 by the demise of chains such as Maplin, Toys "R" Us and Poundworld.

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At least £500 million of that should fall in the final quarter. The impact from store closures announced by Debenhams Plc and House of Fraser is yet to come.

But the continued wrangling over Brexit could undermine confidence - and spending. In fact, the fraught negotiations over the divorce have already taken a toll.

Over the summer, when Britain was basking in record temperatures while enjoying a Royal Wedding and World Cup, retail sales soared. But as the autumn set in, the prospect of the UK crashing out of the EU without a deal increased, making businesses and consumers more nervous, and dragging down sales.

The recent worsening in the political environment - with both leavers and remainers threatening to vote against Prime Minister Theresa May's agreement with Brussels - coincided with the run-up to Black Friday and Cyber Monday.

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When all the data comes through, it may be difficult to completely separate shoppers waiting for deals from an unwillingness to spend because of the current uncertainty.

Early reports suggest that consumers did open up their wallets. Sales at John Lewis had been particularly weak through much of the autumn, but jumped in the week containing Black Friday. This pattern underlines that consumers are only willing to spend when retailers are offering big savings.

Independent analyst Richard Hyman says retail sales this December may be more subdued than last year, and forecasts the value of both food and non-food to grow just 2.5 per cent. Some of the deceleration will be due to lower rates of inflation, but some will also reflect the general weakness in retailing seen for much of this year, as well as damage to confidence from the fighting in Westminster.

Brits won't cancel the festivities altogether. But they may well cut back.

To make things worse, consumers will have every reason to postpone purchases until the last minute. Christmas Day falls on a Tuesday, which means there's one last weekend to shop. UK lawmakers will vote on Prime Minister Theresa May's Brexit proposal on December 11, and the news flow around this could worsen their nervousness.

Delays in the spending splurge will test retailers' resolve on discounting. There are still plenty of deals about in the wake of Black Friday, and if shops slash prices further, that will squeeze profit margins even more.

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When they do part with their cash, shoppers are going to want a bargain - good news for value retailers. Associated British Foods Plc's Primark has upgraded its party wear this year while Aldi and Lidl are seeking to woo the middle-class shoppers fretting over Brexit with a strong festive food selection.

Conversely, that's a worry for mid-market retailers, such as Marks & Spencer Group Plc and Debenhams, as well as the supermarkets.

All that's needed now is a blast of arctic weather to keep consumers from heading to the shops in the crucial days before Christmas, and it really will be a bleak midwinter for British retail.

- Andrea Felsted is a Bloomberg Opinion columnist covering the consumer and retail industries.

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