Two-thirds of retail chairmen have admitted that passing cost increases onto customers will be “unavoidable” following the Brexit vote.
The shock result of the EU referendum last June sparked a steep drop in the value of the pound, increasing sourcing costs for businesses across the UK.
Retailers including Next have admitted they will raise shelf prices as a result of the currency headwinds, but grocery operators including Tesco, Sainsbury’s and Morrisons have vowed to keep price rises to a minimum.
However, according to Korn Ferry’s 2017 UK Retail Chairmen Survey, 67% of respondents said that passing cost increases onto consumers in the form of higher prices would form a part of their strategies this year.
In the survey of 49 retail chairmen at leading companies with combined revenues of £265bn, 61% said reducing overhead costs within their businesses was also central to their post-Brexit plans.
The pool of chairmen, which included Debenhams’ Sir Ian Cheshire, Ocado’s Lord Rose and Morrisons’ Andy Higginson, admitted that they were also concerned about Brexit’s impact on consumer spending, with 80% believing customers will be more cautious with their disposable income over the next 12 months.
Taking the macroeconomic landscape into account, 40% said they were pessimistic about the year ahead, while two-thirds predicted that the early election would have an impact on the retail industry.
“Last year 88% of chairmen anticipated that leaving the EU would have a damaging effect on the economy. There’s a prevailing sense of uncertainty now Article 50 has been triggered”
Sarah Lim, Korn Ferry
Sarah Lim, managing director of retail at Korn Ferry, said: “The general election is front of mind for retailers. The majority expect a Tory win but also hope for a clear result – one that will put domestic divisions to bed and pave the way for smoother Brexit negotiations.
“Fundamentally though, it is Brexit and its multiple implications that remain the biggest challenge.
“Last year 88% of chairmen anticipated that leaving the EU would have a damaging effect on the economy. There’s a prevailing sense of uncertainty now Article 50 has been triggered.”
Despite the headwinds, 72% of chairmen predicted their businesses would grow in the coming year.
But 54% said their retailers would invest more outside the UK than within it during the next 12 months – the highest percentage to say they would favour overseas investment for three years.
Lim added: “Many retailers are gearing up to invest outside the UK to find new growth opportunities. They’re also continuing to invest heavily in digital, own-label development and product innovation – critical for driving growth and exploiting international markets.
“This is a notable shift from last year, and has been clearly accelerated as a result of Brexit.”
Almost all of the chairman interviewed (94%) were white males. Korn Ferry said that reflected the “gender and ethnicity imbalances at the top echelons of the retail sector”.
However, chairmen were divided on the issue of ethnic diversity on boards; 54% said they were thinking about it, while 41% admitted they were not.