As the “remain” campaign rolled out more business leaders, the economic argument not to leave Europe is gaining ground.

The Brexit debate is accelerating, with more big names of retail having come out for the “remain” camp. Sir Terry Leahy, Justin King, Marc Bolland and Sir Ian Cheshire jointly issued a statement outlining reasons to stay last month, and these former chiefs of Tesco, Sainsbury’s, M&S and Kingfisher respectively are among the closest thing to royalty that retail has.

Tesco’s expansion under Sir Terry was so rapid that five years and two successors later the company is still struggling with the empire he built. Similarly, King oversaw 36 consecutive quarters of sales growth at Sainsbury’s, a feat made even more impressive given that much of it was achieved during the global financial and subsequent Eurozone crisis. And Sir Ian oversaw a share price improvement of 120% during his spell at Kingfisher.

“When four statesmen of retail say that Brexit ’could be catastrophic’, businesses sit up and take notice”

Jon Copestake

Bolland’s M&S performance was more chequered, but history may credit him as the chief executive who cemented the retailer’s transition from clothing to value-added food.

Either way, when four statesmen of retail say that Brexit “could be catastrophic”, businesses sit up and take notice. Further weight comes from Andy Clarke, Asda’s chief executive, who used the findings of another Treasury study to add that a Brexit would create an uncertainty in pricing that cements a “remain” position for the WalMart-owned retailer.

Respected retailers

The “remain” campaign has successfully rolled out an array of respected business figures to support its view that a Brexit would be economically damaging. For its part, the “leave” camp draws on the combined experience of a host of politicians, including former chancellors of the exchequer. But when you consider that one of these, Norman Lamont, oversaw Black Wednesday when a run on sterling reportedly cost £3.4bn to the UK economy, then the economic acumen of the leave campaign looks slightly less credible.

“Not only do Sir Terry et al force the world of retail to sit up and take notice, but they are also difficult to fundamentally disagree with”

Jon Copestake

Not only do Sir Terry et al force the world of retail to sit up and take notice, but they are also difficult to fundamentally disagree with. There is a general consensus that Brexit would cause an economic shock to the UK. Uncertain consumers will retrench and consolidate expenditures as events unfold. The pound will almost certainly fall, which means that prices will go up as imports become costlier.

Retailers will experience further shocks. Supply chains with EU partners will need to be revisited as the goalposts move. Regulatory requirements will diverge, forcing retailers to consider two sets of rules when executing pan-European strategy. Rather than cutting red tape, Brexit could create more complexity for retailers seeking to offer comparable services across countries.

Opting out of the Common Agricultural Policy could affect agricultural supply and a Brexit would also take the UK out of the single digital economy, which has particular ramifications for its highly developed ecommerce sector. All of these will add to the costs of doing business. These costs will either be passed onto consumers or borne by retailers, which may have to make cutbacks as a result.

The true impact

In mitigation to those campaigning to leave, the alarmist language may be overblown. A frostier diplomacy resulting from a Brexit is unlikely to lead us down a path to World War Three, and rising inflation on the back of a falling pound is unlikely to see prices skyrocketing. Economic declines will be damaging but not cataclysmic for retail.

The Economist Intelligence Unit predicts that in the event of a Brexit there would be a relatively short, sharp shock, with sales volumes flattening out in 2016 before shrinking by around 3% next year. This would be followed by a muted recovery during exit negotiations before sales flatline again in 2019 as the departure terms are enforced.

“There may be some silver linings for retail. If a Brexit does come about, a pro-leave cabinet would dedicate itself to making an economic success of secession”

Jon Copestake

Sales volumes should resume a more stable growth trend by 2020, but the lost years will have set retail back. In the event of Brexit, nominal sales in 2020 are likely to be about 6% lower than if the UK votes to remain

There may be some silver linings for retail. If a Brexit does come about, a pro-leave cabinet would dedicate itself to making an economic success of secession. This would see a focus on business- and investment-friendly policies with incentives that could benefit some retailers. However, such policies would be limited and the beneficiaries would be in a minority.

Those voting to leave may wish to do so for political reasons but, despite the alarmist language used by the “remain” campaign, the economic reasons to stay for retail far outweigh those to leave.

  • Jon Copestake is chief retail and consumer goods analyst at the Economist Intelligence Unit