It felt like last week when confronted with the threat of life without Marmite, we got our first true taste of the post-Brexit era. The panic was palpable. Twitter was flooded with people madly stockpiling, savvy eBay users started flogging their cupboard wares for vast profits and politicians waded into the furore sparked by a price row between Marmite-maker Unilever and Tesco.
But while the two corporate giants resolved their disagreement within 24 hours of the spat being reported, there are now signs the same pressures could spill over into the world of fashion – affecting high street favourites from Topshop and Next to top end designers such as Jimmy Choo.
With the value of sterling tumbling to a 31-year low against the US dollar following the EU Referendum, companies which import product or pay for materials abroad are now facing costs jumping by around a fifth. As we now know #Marmitegate centred on Unilver’s attempt to introduce blanket price increase on products, which also include Dove, Flora, Hellmann’s and Lynx, by 10pc to cover the increased costs associated with a lower pound.
While Tesco argued that this was unfair considering some of those products were made in the UK, unfortunatately for the British fashion industry many clothing and footwear retailers source the majority of their product overseas and the price of sourcing or manufacturing a dress, or a pair of designer heels has just increased significantly. “For a business in the UK which has historically sourced leather for shoes in Italy, for example, it will certainly mean price increases”, warns Sally Britton, partner at law firm Mishcon.
So, threatened with higher import costs, like our supermarkets, many fashion retailers are now too facing a difficult decision; absorb the higher costs or pass it on to their shoppers. “Shop prices haven’t risen yet and we have just had the twenty-fourth straight month of clothes getting cheaper as a result of stiff competition and the intense fight between online and shops, but that will start to change soon”, says Stephen Robertson, chairman of Retail Economics.
On the high street Next has already warned shoppers that it is prepared to raise prices by as much as 5pc next year following the sterling slump. “We’ve always taken the view that if our costs go up, then our selling prices will go up and vice versa”, Lord Simon Wolfson commented. “Next is one of the few mainstream retailers that has shown price discipline because a number of retailers are discounting heavily”, said Richard Hyman, an independent retail analyst. “Other fashion retailers have very little wriggle room because their profits are shrinking. There will be some companies that will just not survive”, Hyman added.
Analysts at Moody’s have flagged that Next, Marks & Spencer, New Look and Matalan are most exposed to the post-Brexit fall in the pound as they pay for roughly 70pc of their stock in dollars. As a result, post-Brexit pricing pressures are already causing retailers to study their contracts with suppliers to see whether they can renegotiate terms to change their currency payments.
Almost a third of UK retailers questioned in a recent Barclays survey said they were considering changing their suppliers as a consequence of Brexit. However, a glimmer of hope for British industry is that 32 per cent said they would expect to source more from the UK as a result of the referendum – which could lead to a Brexit bounce if more of us buy British.
The real test will be next year when companies’ cushioning against currency movements – known as hedges – begin to expire. Then they will have to start negotiating contracts with the full threat of a depressed pound. “The pressure to rise prices will be intense”, Robertson adds. However, in the short term, British retailers are enjoying a brief boost in sales with tourist shoppers flocking to the UK to pick up designer cut-price handbags.
Research from Deloitte last week revealed that luxury handbags now cost less in Britain than anywhere else in the world. A Louis Vuitton Speedy 30 handbag cost £645 in London, compared to $970 in New York or €760 in Paris while a Balenciaga Foulard Fringe Dress, cost around $400 less in the UK than the US.
High end shops have also been boosted by an influx in Chinese shoppers armed with suitcases bulk-buying luxury handbags and clothes as the weaker pound has coincided with China’s National Day holiday weekend. And British luxury brand Burberry may actually be one of the beneficiaries of Brexit as not only does it manufacture its famous trench coat in Leeds, and therefore will benefit from reduced manufacturing costs, it will draw in international customers too.
But in the long term, the typical British fashion shopper, who has become used to delaying purchases with the expectation of picking them up in the sales a few months later, might need to take inspiration from one of this year’s biggest catwalk trends: See now, buy now – or face higher prices around the corner.
How to buy British by Victoria Moss
- A huge amount of brands and suppliers still manufacture in the UK, employing centuries old craftsmanship. Harris Tweed Hebrides supplies some of the world’s biggest luxury brands – including Chanel, Yves Saint Laurent, Comme des Garçons and Alexander McQueen – with its expertly hand woven cloth (so buying a Chanel tweed jacket is an indirect support of UK fashion).
- Mackintosh (albeit now owned by a Japanese conglomerate) rain coats are still made by hand in Cumbernauld outside Glasgow – which as well as their own label manufacture coats for brands such as Celine and Margaret Howell. Burberry maintains its Yorkshire based factory which employs 800 (but also produces abroad) while John Smedley knitwear has been manufacturing in Derbyshire since 1784.
- A growing number of independent brands are also faithfully making locally: Marwood London creates beautiful lace and wool ties made entirely in the UK. Le Kilt, which has been worn by the Duchess of Cambridge, produces in Scotland, whilst Strathberry and the Cambridge Satchel Company are two excellent handbag companies who both produce here.
Midi tote in blossom yellow, £395, strathberry.co.uk
Olive pleated skirt, £490, Lekilt.co.uk
- Hiut denim was born out of the closing of Cardigan’s denim factory – which for three decades had employed 400 people to create 35,000 pairs of jeans a week.
- E Tautz designer Patrick Grant’s new venture, Community Clothing, produces classic pieces in Blackburn. Not only is he producing well priced, covetable clothes, the company is also ensuring year-round work.
Harrington bomber jacket, £109, CommunityClothing.co.uk
Leather lace up brogues, £165, Best of British Collection for M&S
- On the high street, Jigsaw, has recently launched its Native Shetland knitwear collection, of entirely UK-made knitted pieces, while Marks and Spencer has it’s very good ‘Best of British’ collection which is all made in the UK with roughly 80% of the fabric sourced from the UK too.
Star sweater, £130, Chinti and Parker at the British Wool Collective at Bicester Village
- This week, the Oxfordshire outlet, Bicester Village launched its British Wool Collective pop up store (which runs until January 2017) – backed by the Prince of Wale’s Campaign for Wool. It stocks British-based brands Chinti and Parker, Crumpet, Ross Barr, Markus Lupfer and John Smedley – at half their normal price.