2018 has been a tumultuous year for the UK high street and Brexit is now just over the horizon, bringing with it the culmination of two years of wrangling, debate and uncertainty about what will be the state of UK will be once we leave. But Simon Forrester, CEO of the National Associations of Jewellers (NAJ), says that overall it’s still “way too early for anyone to know the true impact of Brexit, and even at time of writing it’s looking “increasingly likely it may not happen at all”.
He says that on the premise that the UK does leave the EU in late March, it is likely to have a “further negative impact on the high street”, with UK consumers already worried about the outcome – impacting on discretionary spending. Growth from Knowledge’s (GfK) long-running consumer confidence index has been recording significant decreases in shopper’s confidence since August of this year, which has dropped by 6 points to -13 in November.*
GfK says consumers “behave like financial markets”, and when confidence is lacking, “markets stutter and tumble”. It adds: “The prospect of a no-deal/hard-deal Brexit must surely be weighing heavily on people’s minds, injecting a mood of despondency as to how people view their future personal finances and the longer-term economic outlook for the UK. We also appear to be losing confidence that now is ‘the right time’ to make major purchases.”
“The financial uncertainty is going to hit all retailers, but particularly the jewellery industry,” adds Chris McCullough, CEO and co-founder of retail staff scheduling firm Rotageek, “because people will be spending less, they will plan to delay marriages and won’t invest in things like engagement rings, for example.”
He suspects that some of the uncertainty has already hit the jewellery industry, pointing to the constant currency fluctuation as an example. “The pound has tanked more and more as a result of uncertainty which is bringing with it even more challenges, especially for a sector such as jewellery with a lot of foreign currency exposure and with a lot of gems coming in and being priced in dollars.”
He goes on to say that the volatility in the price of gold is also another factor jewellers should be aware of, as investors “often turn to gold during times of financial uncertainty”. “This means jewellers are being hit in two ways,” says McCullough. “As the price of raw products goes up as a result of investment into more stable assets like gold, in addition to the foreign currency fluctuation. So the whole situation for jewellery retailers is particularly tricky in a lot of ways. For retailers a no-deal Brexit will be really hard, but jewellers are going to get hit in an extra way that the regular high street retailers are less exposed to.”
Kyron Keogh, managing director of Rox Jewellery, says the currency fluctuation is the “biggest issue” that could affect his business. “If there is a no-deal Brexit, and with the as predicted 1.1 exchange rate with the US dollar, there could be as much as 30% price increase in diamonds and gems,” he adds. “We have no idea what’s going to happen with consumer spending as well, and I think the uncertainty doesn’t help. If we get get a further fall in the pound it’s going to put pressure on more material costs, prices are going to have to go up, you’re going to have inflation.”
In terms of exporting goods to the EU, McCullough says that if the deal goes ahead there will have “some protection with these import export rules”, but if there is a no-deal Brexit “going by World Trade Organisation’s rules it’s still really unclear”. “There are a proportion of people who think that it isn’t going to be a problem at all, but there are others who think we won’t be able to implement the systems that we need in order to make sure we can import and export in a sensible way. Other industries are creating an infrastructure to make sure they can manage that import export process.”
Forrester adds that he has also been hearing “as yet unconfirmed rumours” that parts of the Jewellery Quarter are “likely to be sold off to developers”, which he says may “impact local retailers and manufacturers”. Additionally, he says many retailers employ staff from across the EU, and their work and residence status is “not definite”, which may cause higher staff turnover.
IS IT ALL DOOM AND GLOOM?
“No”, says Forrester, “it’s a very long tunnel, but the one ray of light at the end of it is that any change creates opportunity”. If Brexit does happen, and if the industry is able to lobby the UK government “successfully”, he says, the industry could see a “preferential luxury goods sales tax regime compared to the EU”, which would bring in” significant numbers of European buyers”.
“If we do take charge of our own laws, NAJ will be ready to lobby UK government to help the jewellery industry, for example by less regulation or reduced business rates. Looking further afield, Brexit offers better access to markets outside the EU such as China where UK goods are held in high regard.”
He also believes leaving the EU could “enrich” the UK jewellery industry, as there is likely to be “increased spend in UK products”. He notes that the NAJ is planning for just such an eventuality with its ‘Made in Britain’ hallmark, launching during the first few months of 2019. There would also be benefits to a lower pound when exporting products and investing abroad. “This will be offset by potential lack of access to the single market coupled with short-term negativity towards UK companies from EU businesses and consumers, but that will pass,” he adds.
Additionally, Keogh says jewellery retailers could protect themselves from currency risks of a no-deal Brexit by hedging* currency for a couple of months to protect themselves. He adds that stockpiling diamonds is also one of the other options – buying them before Brexit and while the price is lower. “The jewellery industry is quite lucky because a lot of the stock that can be stockpiled is quite portable and small. Although hopefully we won’t get caught up in these rumoured blockades in the major ports that could happen from Europe.”
Forrester concludes by saying he has also noticed businesses shift from hiring and replacing permanent staff with interim workers due to the uncertainty. He notes that this won’t be beneficial in the long run and urges jewellery retailers to “continue to train and invest in key staff”. “It is important to remember that most businesses [likely to fail] fail after the recession is over.”
Hedging: According to Western Union Business Solutions currency hedging is defined by entering into a financial contract in order to protect against unexpected, expected or anticipated changes in currency exchange rates. It’s used by financial businesses to eliminate risks they encounter when conducting business internationally.
Consumer Confidence Index: The index is derived from the survey where consumers which are ask to rate the relative level of past and future economic conditions including personal financial situation, climate for major purchases, overall economic situation and savings level.