Retailers face post-Brexit slow down

Published:  12 July, 2016

Short-term drop in retail sales

A post Brexit update by Oxford economics indicates that UK economic growth will slow this year and next, but this deceleration is expected to be modest and will be followed by a recovery over the longer term.

According to Andrew Burrell, head of economics and forecasting, JLL EMEA, “While the current uncertainty brings risks, the UK economy is in better shape than in the past. Certainly in relation to the Global Financial Crisis (GFC), the UK economy is considerably less vulnerable now after a prolonged adjustment in balance sheets. Households have reduced their debts to more sustainable levels. Recapitalised domestic banks are now in far better shape following several years of consolidation. And the government, which previously developed a huge deficit as a result of the bail-outs and the recession, has brought this back under control following several years of austerity.”

Retailer results released post-Brexit continue the theme of winners and losers within the Retail sector, which predated the Brexit vote. Primark saw total sales growth of 7 per cent in the 40 weeks to 18 June, driven by 11 new store openings. In contrast, Marks & Spencer UK LFLs fell 4.3 per cent in the quarter to July 2, with clothing sales down 8.9 per cent. M&S blamed a ‘weak market,’ as consumer confidence was hit ahead of the EU referendum, as well as moves to cut promotions and shift its summer sale into July. The only indicator of post-Brexit consumer behaviour has been provided by John Lewis, which recorded sales growth slowing to 2.1 per cent in the week to July 2, compared with 7.3 per cent the previous week, and 4.8 per cent in the same week last year. Sales at Waitrose fell 2.8 per cent, compared with the prior week’s 0.7 per cent decrease. The extent to which Brexit is responsible for these and other retailer trading results is open to debate. In fact, one of the challenges faced by the industry post-Brexit will be to isolate the impact of the vote from existing, underlying trading patterns, resulting from the ongoing structural change within the Retail industry.

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