On June 23rd, 2016. Britain voted to leave the European Union, the 28-nation trading bloc. The pound plummeted to its lowest level in 31 years, $2 trillion wiped off the global stock market, and the shock waves are going to be felt in the global apparel industry as well.
Britain’s exit from EU might take away EU’s single market facility out of its hands, well a hard Brexit will surely do so, but nothing has yet been clearly expressed. Though UK Prime Minister, Theresa May, has assured that the negotiation process for Brexit will be done with the intention of protecting the rights of UK citizens in other EU countries and other EU citizens in the UK. This sure signals her inclination towards a soft Brexit, which is a sigh of relief for the apparel industry.
Tariff-free trade in the EU, free movement of talent and skills, EU funding and investments were the lifeline of UK’s apparel industry. Actual effects of Brexit will be clear only after the terms of trade have been negotiated and formalized.
But what it can entail needs to be discussed.
Brexit will have a further devaluating effect on the pound and will increase the economic uncertainty, which will most certainly lead to lowering of the domestic consumer confidence and thus hit the UK’s retail sector hard.
The UK accounts for 1.72%, i.e. around $37 Billion worth of apparel exports globally, and 3%, i.e. $131 billion worth of global apparel imports. This makes the UK, the fourth biggest apparel importer globally, after USA, Germany, and Japan. With such a large share of global apparel trade dependent on the UK, Brexit sure is going to have a negative impact on it.
With Brexit, free movement of EU and UK’s citizens across Europe will be compromised, which is going to create problems for apparel firms where foreign employee base accounts for a large share of the total workforce. Such a scenario makes it hard for these companies to recruit and retain talent at the current staffing costs. This will further impact the profitability of the Britain’s apparel industry and thus their relations with foreign suppliers and customers.
Before its exit, Britain had a trade agreement with the EU, but now, all the trade between Britain and EU would be as per the WTO rules. This means trade between Britain and EU will be subject to trade tariffs on imports and exports, the Textile goods tariff being around 12% in duties. Obviously, only the British Apparel companies are going to face the blow by these trade tariffs, but these companies will pass on this extra cost on to their customers which will further impact retail and to suppliers which will impact the companies doing business with British apparel firms globally. There may be chances of a negotiable free-trade deal as well , similar to Norway (EFTA) and Switzerland.
UK’s apparel industry is dominated by firms financed through EU funding, and if the government steps out to replace that funding, then these companies might sail through. Otherwise many of these apparel companies might even face extinction.
Though the consumer confidence within the UK will be shaken, but falling pound value will surely bring in foreign tourists and customers to the UK retail market, which in short term will boost the sales for many fashion brands in UK market.
UK government can negotiate for partial membership in EU, where it can pay fees to sustain the free movement and tariff-free trade within EU, but the chances of that are bleak. Though, partial membership will not ensure EU funding in British apparel industry. They can even go for a free trade deal, but lose access to the single EU market. Whatever the case may be, global apparel industry, especially the players involved in trade with Britain, will need to reassess their global presence and supply chains to brave the shock that Brexit is going to bring their way.