The Brexit decision may have brought uncertainty, but retailers can make the most of it.
Brexit is not yet a reality but the decision to quit the EU has already created uncertainty for retailers.
Since the historic June 23 referendum, the value of sterling has been hit, there have been swings in consumer confidence and the likelihood of shop price rises has been flagged.
However, retailers are determined to ride out turbulence in the run-up to and after Brexit.
Rather than wring their hands, they are seeking to make the most of changed circumstances.
The decision provides the chance, if nothing else, to stop, take a breath and review business models and strategy.
Here, we look at some of the opportunities retailers have to benefit from Brexit.
Capitalise on domestic tourism
The fall of the pound is making holidaying abroad increasingly expensive and more Brits are expected to turn to taking breaks in the UK.
Younger groups may still find the cash required to take their annual trips to popular sun traps such as Ibiza and Marbella, but families in particular will seek solace in British coastal towns – and grocery retailers could reap the rewards.
“Fashion retailers will still benefit from the 16- to 30-year-olds going abroad, but families who go away don’t spend as much on fashion. If they holiday in the UK, who is going to gain? The supermarkets”
Phil Dorrell, Retail Remedy
Retail Remedy partner Phil Dorrell says: “If more people are going to holiday in the UK in 2017 than they did in 2016, which seems likely, retailers need to be thinking about what they do to facilitate that.
“Fashion retailers will still benefit from the 16- to 30-year-olds going abroad, but families who go away don’t spend as much on fashion. If they holiday in the UK, who is going to gain? The supermarkets.”
Dorrell urges larger stores and c-store operators to take advantage of domestic tourists by “concentrating on summer events”, focusing their marketing and promotions around themes such as the Great British summer, picnics and music festivals to drive footfall and sales.
Focus on your most valuable customers
Sales may come under pressure following Brexit.
Many observers predict a tightening of consumers’ belts and an increase in prices on the shelf edge once Britain’s exit from the EU is finalised.
Against a tough backdrop, retailers have an opportunity to protect sales by focusing on their most loyal, valuable customers in an attempt to keep trade ticking over at pre-Brexit rates.
“A lot of retailers know their top-10-selling products, but when you ask them to name their top 10 highest value customers, they can’t”
Dan Murphy, Kurt Salmon
Dan Murphy, partner at retail consultancy Kurt Salmon, suggests that many retailers, particularly in the luxury sector, derive a high proportion of their sales from a much smaller number of customers.
But he says: “A lot of retailers know their top-10-selling products, but when you ask them to name their top 10 highest value customers, they can’t.”
Brexit will spark an opportunity for businesses to build stronger relationships with their highest-value customers and create personalised marketing and advertising campaigns to keep them coming back for more – at a time when retailers will need them most.
Make the most of ‘brand Britain’
The decision to leave the EU was prompted by many people’s fears that they, and the UK, were losing out on benefits of membership to the advantage of distant elites and people from other countries.
But retailers in the ‘nation of shopkeepers’ can capitalise upon their unique status to win custom in the changing circumstances of Brexit.
They can do so in all sorts of ways, from their fashion credentials to sourcing to the vital role they play in the communities they serve.
“Retailers have an opportunity to set the agenda on what it means to be British in the vacuum left post-Brexit”
Allison Vettasseri, Clear M&C Saatchi
British identity is often a big part of UK retailers’ overseas appeal, and it could play a bigger role at home.
Clear M&C Saatchi strategy director Allison Vettasseri says: “Retailers have an opportunity to set the agenda on what it means to be British in the vacuum left post-Brexit.
“Whether that’s capitalising on the global nature of ‘British’ culture or telling a story about getting back to your roots, there are several potential routes to forge new emotional connections with customers.”
Strengthen confidence in trusted brands
The divisive referendum campaign and the as-yet-unknown implications of Brexit have created a jittery mood.
Amid the uncertainty of seismic change, shopping is a constant and leading retailers can make the most of the huge trust placed in them by consumers.
Their heritage and values, in many cases built up over decades, can provide reassurance and maintain loyalty.
Those values can be emphasised through everything from marketing to the in-store experience.
Clear M&C Saatchi ’s Vettasseri observes: “In times of uncertainty, consumers look to protect what’s nearest and dearest to them – and, in turn, they also want to feel protected and taken care of by brands they trust.
“A safe pair of hands can provide immense comfort and reassurance in troubling times.
Brands have the opportunity to reap benefits by investing in strong, reliable customer service – however that’s defined and valued by their target audience.”
Build an international customer base
The devaluation of sterling has made the UK an attractive shopping destination for overseas consumers.
A Louis Vuitton Speedy 30 handbag cost shoppers visiting the UK $802 when converted to local currency, versus $970 in the US and $1,115 in China
In fact, the UK has become the most affordable market for luxury goods in the world, according to research from Deloitte.
The study showed that a Louis Vuitton Speedy 30 handbag cost shoppers visiting the UK $802 when converted to local currency, versus $970 in the US and $1,115 in China.
Such savings have attracted many overseas shoppers to the UK.
In July the UK recorded its biggest-ever month for tourist visits – 3.8 million tourists visited.
The big savings of late may be temporary as brands seek to adjust pricing.
However, the value on offer has given UK brands a shot in the arm and an opportunity to cultivate loyalty with overseas shoppers.
Low prices may be the reason they chose to shop with UK retailers.
But excellent service, choice and experience may get them coming back even when savings disappear.
Greater productivity and efficiency
The fall in sterling means that UK retailers that buy in dollars will experience a rise in costs.
To mitigate that, retailers will need to focus on improving productivity.
Bain & Company partner Jonathon Ringer says: “It is yet another reason, alongside changing competitive dynamics and customer behaviour, for these retailers to be relentlessly focused on the efficiency of their cost and operating models in order to invest in the things that matter most to their customers.”
Retailers will be forced to ask questions about whether their business models, sourcing strategies and staff structures are fit for purpose in this new world.
Retailers should reap the benefits of an in-depth analysis of their people and processes long after the headwinds of Brexit have subsided.
Make the most of UK manufacturing
The weakness of sterling might make goods produced overseas more expensive, but that creates a more compelling case to buy products made in Britain.
The potential higher import tariffs and trade costs after the UK’s exit from the EU could add further impetus for retailers to invest in manufacturing at home.
Buying British-made product is likely to still cost more than goods produced in Bangladesh and China.
Fashion retailers such as River Island use a special ‘Made in Britain’ label to promote their provenance
However, the benefits of ordering products in smaller quantities and with less forward planning could appeal to fashion retailers and allow them to mitigate against the unseasonable weather that has hit many including Next and Primark over the past year.
A resurgence in manufacturing could also extend beyond fashion.
Retail Remedy managing partner Phil Dorrell believes it could benefit the grocery industry too.
Products manufactured in the UK can hold value for some shoppers – fashion retailers such as River Island use a special ‘Made in Britain’ label to promote their provenance.
This label may hold even more resonance during Brexit and could even persuade shoppers to pay a little more for their home-grown goods.