The Brexit vote is certainly one which shocked the nation and the aftershocks are already visible with the pound at its weakest since 1985. This is a concerning spot for many UK based, global retailers. We face much uncertainty in the complex space that is global trading and the ongoing debate around Britain’s financial stability post-Brexit, will continue for some months. It could take a few years to see and understand the full impact as we navigate our way through market reactions, changes in political leadership and negotiate the complete terms of the Brexit.
Retail pricing will certainly be impacted but Brexit could present both challenge and opportunity depending on the trading dynamics of your business… is it the light at the end of the tunnel or a high speed train heading straight for us?
The weaker pound could result in higher cost prices for retailers who import goods from outside the UK but the effects of that will likely be delayed for at least the next few months. Many retailers will have hedged their currency liabilities through Autumn/ Winter 2016, resulting in stable cost prices until early Spring / Summer 2017. At this point, retailers will start to feel the pressure on UK margins as the cost base increases, unless they pass that onto their domestic customers in the form of higher prices. The latter is a risky strategy which could impact trade if the increase is noticeable or within particularly sensitive and competitive retail segments.
Some UK retailers now have over 50% of their sales coming from international territories. This could lead to trading upside as there is an increased perception of value for money (cheaper prices) in the eyes of international customers. A detailed understanding of pricing is key in these turbulent times. Smart retailers will devise a local pricing strategy for each of their key markets, allowing them to understand the potential impact of these currency movements. Retailers should take this opportunity to identify their closest competitors by market and where their own brand prices should sit against them. Working through the complexities of fabrication, fit and style is not easy but the insight this provides will inform pricing decisions and identify risks or opportunities to currency exposure.
With such uncertain times upon us, it’s important for retailers to determine who those competitors are and where those prices need to be… the results will inform a pricing strategy that is clear for the entire business to understand and execute. In its simplest form, it should highlight the ideal full price trading position e.g 10% cheaper than competitor ‘A’ and 30% more expensive than competitor ‘B’. This can be tough for large, complex businesses which require detailed comp shops at department and / or category. This results will kick out an ideal site conversion rate for key international territories which retailers can then action and manage accordingly.
International customers will expect to see cheaper prices with a weaker pound but it’s important to try and steady the ebbs and flows of foreign exchange. If the pound bounces-back, you could be facing a deadly problem where you are suddenly looking more expensive and will likely see that hit trade and your growth run-rates. If your pricing strategy is informed, in the right place and your proposition is competitive then you have a good run at being a truly local retailer, minimizing your exposure to those turbulent swings in trade.
Considered retailers in this space will understand the risks and opportunities facing them to shape and control their trading destiny… or at least steady the ship in these troubled waters!