This article was published prior to the publication of the post-Brexit agreement between the UK and EU which covers the relationship between the UK and EU following the end of the implementation period (commonly referred to as the “transition period”) created by the European Union (Withdrawal Agreement) Act 2020, and should be read in that context. For up-to-date commentary and information on our services, please see our Beyond Brexit page.
Following the UK's decision to leave the EU, the uncertainty of the post-Brexit landscape could spur an economic cutback made worse by increased barriers to trade, prolonged investment decisions and shifting migration policies.
The UK economy is set to have a shock with Brexit uncertainty holding back both business investment and consumer spending with retailers reporting that there are fewer shoppers on the high street than last year. However, the low value of the pound aids UK exports and as a result, some believe international investment may increase which could mean that the UK retail sector may grow successfully.
Within the retail sector it has been argued that food and drink companies, in particular, will feel the hit from a lack of EU workers with lower wage expectations. With the UK making the final plans to leave the EU, cross-border recruitment practices would frequently be frustrated because of the associated changes to immigration law. ?There has also been a difference of opinion from many small and large businesses on Brexit - earlier this year YouGov conducted a poll for The Times which showed that 96% of big businesses would like to remain in the EU, compared to only 47% of SMEs. However, The British Retail Consortium published a report last year titled, "Would Brexit be better for Retail?" and concluded retailers are most likely to support the decision that allows for the best access to competitive retail markets in the UK and abroad.
It has recently been reported that Poundland has agreed to a 597m takeover by Steinhoff, the South African retail conglomerate who owns Harveys and Bensons for Beds in the UK. Steinhoff has reportedly failed in its bids to buy Home Retail Group and French retailer, Darty earlier in the year, yet Poundland recommended the deal to its shareholders backing the strategic move. Poundland's Chairman, Darren Shapland, has said the takeover would allow the retailer to achieve its turnaround ambitions sooner than expected.
However, it has not been all plain sailing for Steinhoff as it previously hinted at its intention to buy Poundland before the Brexit vote, but takeover talks had been delayed by the post EU referendum stock sell off that saw the retail sector drop by 15%. Despite the drop in the retail sector, discount retailers have continued to thrive in the UK over the past few years and with the support and interest from international investments, this growth is expected to continue.
International food suppliers such as Lidl and Aldi, are set to benefit from the Brexit vote as the majority of shoppers are looking to change retailers or brands to save money by using price-led retailers, often originating from international countries.
Another example of a UK company impacted in the wake of Britain's vote to leave the EU is London listed, Wizz Air who has revealed it will be slashing plans to boost flights from the UK. Wizz Air had been pursuing opportunities to add more services to its existing routes to and from Britain, but with the decrease in value of sterling following the announcement of Brexit, Wizz has cancelled those plans and has decided to station just two new jets in the UK instead of four, the intended amount.
Barratt Developments, the UK's largest housebuilder by output, is another prime example having recently announced that it will put land-buying commitments on hold to evaluate recent purchases following the Brexit vote as the value of its shares have decreased.
Amid the fears and uncertainty that have surrounded Britain's post-Brexit future, there have been both drivers and restraints for international investment in the UK for the country's retail sector. A lot of this can be seen with lengthy global supply chains soon becoming unfeasible meaning brands will have no choice but to produce in the UK. It can be argued that the country needs to support manufacturers to win back some of the business that has been lost to globalisation by encouraging British brands to use British manufacturing companies over competitors based outside of the UK.
Previously many brands have used manufacturing companies in different countries as they provide lower costs and the saved funds can subsequently be used on advertising and creating bigger and more luxurious shops to make the shopping experience more enjoyable for the shopper. It is argued that if brands use British manufacturers and focus on maintaining smaller shops in less prime-locations, the UK will see an upswing in the retail sector avoiding the need for international investment from foreign investors.
The current state of international investment in the UK has been a varied one, with many UK retailers putting plans for buy-outs or expansion strategies on hold due to the uncertainty of the Brexit and how this will affect the economy. However, this does not mean that these plans to grow and invest in our retail sector will be postponed for long. With the steady increase of international investment, such as the Steinhoff's takeover of Poundland, the UK retail sector is set to continue to flourish.