Brexit, Six Months In – Boom or Gloom for the UK Fashion Industry?

Back in June, half a year ago, Britons voted in a referendum to decide whether to leave or remain as part of the European Union. The tight result was however favourable to the ‘yes’ vote, sending global financial markets into a spin and seeing the pound plunge to its lowest level in over thirty years.

Since the very beginning, when the referendum was still in early stages, the British fashion industry united unanimously to vote ‘no’: given that 70 percent of its 8.5 billion pounds worth of exports go to the EU, that didn’t came as a surprising decision.

Although the FTSE 100 index has since bounced back, the BBC recalls that the pound is still down at levels last seen in the 1980s.

Now, merely three months away of the date formal Brexit talks will start – in late March 2017 – the pound has fallen back to the lows it hit in the 23 June vote’s aftermaths.

Brexit six months later: fashion industry winners and losers

As the six-month anniversary of British vote to leave the European Union sets in, it’s time to review how Brexit has affected the fashion industry in the UK.

FashionUnited has looked into publicly traded fashion companies’ performance, retailers’ seasonal and trading updates, monthly sales at the high street and the outcomes of the first edition of the London Fashion Week after the referendum to identity the main winners and losers in a post-Brexit UK fashion industry.

Winners: Burberry, ASOS, luxury firms relying on savvy affluents visiting the UK

From a stock trading point of view, the companies whose shares have fared best since referendum day are those which make most of their money in other currencies and are less exposed to the UK economy. This is the reason why, in the days after the referendum result, many investors started looking at FTSE 100 companies with large businesses outside the UK.

This is the case of Burberry, called out to be in the “sweet spot” for UK companies, said Laith Khalaf, an analyst at Hargreaves Lansdown quoted by the BBC. In October, Khalaf explained that because of the pound’s fall, the money Burberry makes abroad in dollars, euros and yen is worth more back in the UK, and the costs in its UK head office are relatively lower.

Additionally, the quintessentially luxury fashion house is expected to benefit from more Asian tourists bargain-hunting in the UK after the pound’s fall. “Chinese tourists are very savvy in their understanding of global foreign exchange rates,” says an analyst at RBC Capital Markets, although he adds that more visitors to Burberry’s UK shops could come at the expense of sales in other regions.

To date, Burberry’s overseas earnings are worth more after the fall in sterling. The fashion powerhouse generates about 85 percent of its sales abroad. The company sided with the rest of the industry in voting ‘no’ to leave the EU, warning staff that it would be stronger inside the common market. However, Brexit has proved to be a boon for the fashion group’s stock, which has traded up by 24 percent since June, 23. This rally has added more than 2 billion pounds to its market value, bringing Burberry to the top of the Brexit winners, not only within the fashion industry, but also among other values gathered within the FTSE 100.

Still within the luxury goods niche, Deloitte has compared the retail prices of some high-end garments and accessories including the Louis Vuitton Speedy 30 handbag as well as a cashmere sweater from Brunello Cucinelli, which happen to me marked at around 100 dollars less each in London than in New York. Deloitte’s fashion and luxury lead Nick Pope told the BBC: “The trend in luxury pricing in the UK is being driven mainly by the depression on the sterling – thus making the same item more affordable in the UK market than in any other major luxury market.” He added that “People don’t like paying more for the same product.”

At the other end of the fashion spectrum yet still in the winners’ waggon, stands fashion e-tailer Asos. Britain’s largest online-only fashion retailer has recently announced its plans to double its UK manufacturing as the pound’s post-Brexit plunge makes domestic production more affordable.

Chief Executive Officer Nick Beighton said in an interview before Christmas that the company will open more plants in Britain over the next three to four years to support its expansion plans – it currently makes about 4 percent of its products at two factories in London. Circa 45 percent of Asos sales represent own-brand products, the company said.

Unlike many domestically focused fashion rivals, Asos has benefited from the drop in the pound, because about 57 percent of its sales are outside the UK. About 70 percent of Asos’s 1.45 billion pounds annual sales are generated in Europe and the currency’s decline has allowed the company to cut prices to win even more shoppers internationally and makes it easier to invest, highlighted Beighton.

Losers: M&S, John Lewis, Next

While Asos could gain from UK production, other retailers with more domestically focused businesses would benefit less from repatriating production, said Richard Hyman, an independent retail analyst. “People that think lots of clothing manufacturing will now come back to Britain are living in cloud cuckoo land,” he further added.

Following the controversial Brexit vote this past June, the pound has depreciated approximately 17 percent against the dollar.

Although British exports will be cheaper, that would be only the case of companies that don’t rely on imported goods and manufacturing. Many in the industry point out that the most likely net result of Brexit is that British brands will become much more expensive for British customers.

With the bulk of British clothing retailers’ goods sourced from Asian suppliers and paid for in dollars, a weaker pound has a major impact on their buying costs. Sources close to big retail names told Reuters that, traditionally, the country’s biggest clothing retailers, including M&S, Next (NXT.L) and John Lewis, are hedged up to 18 months ahead, meaning that if sterling stays depressed the main impact will not start to be felt until the second half of their 2017-18 financial year. The exception would be Sports Direct (SPD.L) is the notable exception, being unhedged for sterling-dollar for its 2016-17 year. Its share price is down 32 percent since the vote.

Angela Gonzalez-Rodriguez from Fashion United

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