Britain may yet say au revoir to our continental cousins as the odds on a Brexit have shortened. So what could this mean for UK retail?
With political heavyweights such as Boris Johnson and Michael Gove backing the out campaign, bookies have lowered the odds on the majority of UK voters opting to leave Europe when the June 23 referendum takes place.
A vote to stay in the EU remains favourite. But if a Brexit did happen, what could the implications be for retail?
How worried should retailers be and should they try to influence the decision?
Shore Capital analyst Clive Black suggests retailers will be most concerned about associated macro-economic factors, such as the strength of the pound.
Sterling hit its lowest level against the dollar since 2009 following the announcement by David Cameron that the UK’s EU fate would be decided in an in-out vote by the people. And HSBC has warned a Brexit could wipe 20% off sterling’s value.
“What happens to sterling is a major consideration for retailers,” says Black. “Should it move materially that could have considerable implications for import prices and consumer prices.”
Independent analyst Nick Bubb agrees that sterling movements will be a key concern for retailers.
“The main macro problem for retailers is that sterling would tend to be a bit lower and interest rates a bit higher than they would be otherwise, although there are many moving parts to that trade-off,” he observes.
Another worry is any impact on jobs.
“We know if we came out overnight there would be new tariffs. In the interim does that mean jobs and prices are affected? We believe it will”
Lord Rose, Britain Stronger in Europe
Advocates of the in case, including former M&S boss Lord Rose who is heading the Britain Stronger in Europe campaign, claim that 3 million jobs are associated with Britain’s membership of the EU.
He told Retail Week: “We know if we came out overnight there would be new tariffs. In the interim does that mean jobs and prices are affected? We believe it will.”
Supporters of the in camp argue the EU safeguards British jobs because it offers access to a market of 500 million consumers.
Britain’s membership also attracts foreign firms keen to be part of that market, it is maintained.
And retailers that employ a significant number of foreign workers, such as Sports Direct, could be adversely affected as visa issues are heightened by Britain’s possible withdrawal, according to Bubb.
It is estimated there are more than 2 million EU workers in the UK.
Bubb says it could be another headache for Sports Direct owner Mike Ashley because of “all the Polish workers in the Shirebrook warehouse”.
He observes: “Many of the lowly paid jobs in the distribution and logistics trade are filled by Europeans and Brexit could make this more problematical.”
A survey by law firm DWF found that the demand for workers from outside the UK was expected to surge in the next three to five years.
DWF’s head of retail, food and hospitality Hilary Ross, says: “If we take away that free movement of people, where are you going to get your pool of unskilled labour?”
Ross’s other concern is about legislation. Four in 10 UK retailers regard international expansion as a key plank for growth, according to the DWF survey of 150 senior retail executives.
Of these, about half are looking at Europe. Big retailers such as JD Sports, John Lewis and Poundland are among those that have talked about their ambitions on the continent.
But as Ross explains, if the UK leaves it would have no influence on product regulations, such as clothing and food, or rules on advertising, potentially creating more problems for retailers operating in Europe.
Ross also points out the issue of untangling EU rules on the domestic front. “The whole unpicking of laws would take years,” she says.
Asda has flagged previously that if a Brexit happened, Britain could be hampered in its trading agreements globally.
A document entitled ‘Getting Britain Growing’, published by the Walmart-owned grocer in 2014, said: “Working together with our European partners provides UK businesses with a more powerful voice and advocate on the international stage, helping to ensure we remain competitive, retain access and exercise influence in overseas market.”
However, most of the implications of a Brexit do remain conjecture. In this respect, Black believes retailers won’t be over-planning for a possible exit from the EU.
“The sun will still come up on June 24, life will go on,” he says. In the meantime he suggests retailers are more concerned about the impact of the national living wage, which arrives in April, and the burden of business rates.
Uncertainty affecting consumer confidence
The uncertainty in the build up to the referendum may however affect consumer confidence, which is already fragile, according to Bubb.
“It’s safe to say that the uncertainty about the outcome of the referendum will do nothing to help consumer confidence over the next few months”
Nick Bubb, analyst
“It’s safe to say that the uncertainty about the outcome of the referendum will do nothing to help consumer confidence over the next few months,” he says.
The Brexit debate has thrown up the issue of how involved businesses should get in influencing the outcome.
Only Asda of the big four grocers has come out publicly in favour of staying in.
Rose insists retailers cannot afford to shy away from the issue. “Each company has got to decide what it wants to get involved in,” he says. “But they have a duty to make sure their employees know the pros and cons in terms of investment, jobs and prices.”
However one retail observer believes it should be left for the people to decide.
Neil Saunders, managing director of analysts Conlumino, says: “While business leaders, like everyone else, are entitled to their views and to express them, this is a decision for the people of the country to determine and it is not, primarily, an economic decision. It is a political decision.”
He is unconvinced by any crystal ball gazing over a Brexit.
”The trade-off between staying and leaving is extremely complicated”
Neil Saunders, Conlumino
“No one can seriously claim to have knowledge of the impact of an exit, or the future consequences of staying in,” he says.
“It’s very easy to claim that jobs will be under threat by a Brexit, but it is much more difficult to explain how and why this is the case.
“There are advantages and disadvantages of both leaving the EU and staying within the EU. The trade-off between staying and leaving is extremely complicated.
“Good businesses will find a way to succeed and make a profit – just like they always do.”
The one plus is that retailers now have less than four months until the referendum outcome – as recently as January David Cameron had said he was in no hurry to hold a public vote before the end of 2017.
So whatever the decision of the British people on June 23, at least there will be clarity sooner rather than later.