Andrea Felsted: Brexit delay could throw a lifeline to UK retail

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Andrea Felsted: Brexit delay could throw a lifeline to UK retail


The closure of some Debenhams' outlets could help UK retail in the long run
The closure of some Debenhams’ outlets could help UK retail in the long run

In Brexitland, much of the talk this week is about extension and delay. Whatever that means for the various camps in the debate, there are two consequences for UK retail.

Postponing Britain’s divorce from the EU could deliver a short-term lift to consumer spending, and the country’s struggling stores. But it could store up trouble for high streets and shopping centres further down the line.

Prime Minister Theresa May is seeking to delay Brexit until June 30 in the hopes of getting a deal through parliament within that time. EU leaders meeting for their summit this week may instead demand a longer extension of up to a year.

Since the referendum, the Brexit negotiations have made shoppers cautious, but their level of worry hasn’t been constant – sentiment ebbs and flows with the sense of crisis in government. Though spending has largely survived the turmoil around the EU negotiations, the domestic political drama has been a drag.

If the latest round of Brexit talks shifts the departure date out by a few months, and moves the divorce proceedings off of the front pages, that could induce consumers to loosen their purse strings a little. An even longer delay could have a similar effect. And why not? Fundamentals are good. Wage growth is outpacing inflation, and people have spending power.

There’s lingering skittishness. Retail Economics, an independent consultancy, found that sales of homewares, electrical items, furniture and flooring all fell in February from the year earlier, indicating that consumers are still wary of making big-ticket purchases.

The impact of the current turmoil in Westminster on retailers will be difficult to discern in official data. Easter, a major event for them, is three weeks later than in 2018, so spending patterns are already set to be disrupted. But it looks like, as has been the case since the referendum, consumers will continue to muddle through. There might even be a stronger showing in the shops if the late holiday combines with a bout of warm weather and sends Brits scurrying to buy barbecue food and off-the-shoulder dresses.

I have long argued that if retailers can navigate the pressures from the incessant march of online shopping and the uncertainty over Britain’s split from the EU, they should be on a firmer footing.

It helps that capacity is coming out of the market. Debenhams’ slide into insolvency will likely lead to some store closures. Philip Green’s Arcadia group is set to shed some locations. But there are caveats.

Firstly, if officials schedule a new departure date for around the end of the year, as some reports have suggested, that could set a flash point for political turmoil right in the midst of the holiday shopping season, the period that accounts for a large portion of retailers’ profits. But even a rolling extension, where the UK could leave at any time up to a particular date, could prolong the rollercoaster ride.

The longer Brexit-frightened businesses postpone investment, the greater risk of damage to the economy, and people’s jobs. Consumers make the most drastic changes to their purchasing habits when the shadow of unemployment looms, so any whiff of recession could create a serious drag on their spending.

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For consumers to finally splash their cash more freely requires a firm resolution and a smooth exit from Europe. Unfortunately for shoppers and long-suffering store groups, both remain far off.

Bloomberg Opinion

Reuters

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