How Will Brexit Impact Retail?

According to a report from Fung Global Retail & Technology, inflation is coming — but a decline in retail sales volume will likely precede it.

The UK’s vote to leave the European Union set off a ripple effect across the world: Talk of Brexit’s impact on everything from the global economy to the daily lives of UK citizens has dominated the news for the past five days. Forthcoming economic shifts have the potential to affect everything, including import duties, currency exchanges — and even Game of Thrones.

As such, a report from Fung Global Retail & Technology looks to take a deep dive into what Brexit means for the future of retail — starting with a likely drop in retail sales volumes.

What A Weakened Pound Means

Over the next year, prices on consumer goods are likely to be pushed up by the weakening pound, though economists are divided on how drastic these increases will be. And while major banks haven’t forecast a recession for the 2017 year, UK GDP growth is likely to be between 1 and 1.5 percent lower than it would have been with a “remain” vote.

The British pound initially fell by 10 percent against the dollar, and it is currently sitting at 7 percent down. As a result, major UK retailers like Marks & Spencer and Debenhams saw a slump after the markets opened following Brexit. All of this factors into the report’s projection that retail sales volume will drop, at least temporarily.

The decline isn’t all bad news. “We expect retail sales volumes to soften due to weaker consumer demand,” says Deborah Weinswig, FBIC’s executive director/head of Global Retail & Technology, and the report’s author. “But the value of retail sales will be supported by raised inflation.”

Put simply, the weaker pound will likely push up the rate of consumer price inflation, but it will take more than a few months for that to cover the short-term losses suffered as consumers are more cautious about their spending in this initial period of questioning and instability.

Can Location Tech Fight Sales Decline?

What are retailers — particularly those in the UK, most immediately affected by the fallout — to do? Well, though Brexit is unlikely to cause any sort of large-scale recession, retailers can embrace mobile tactics that have been proven to drive foot traffic, even if sales growth is still slower than expected.

In terms of driving traffic to stores during a slump, UK-based retailers will likely lean on deals and promotions — and they’d be smart to embrace location-based targeting in order to communicate with the right consumers at the right time.

Recent research has confirmed that location-based mobile ads have a proven link to an uptick in store visits, which could certainly come in handy if retailers find themselves experiencing a downturn in in-store sales. In fact, xAd found that a location-relevant overlay produced a 43 percent increase in in-store visits over standard creative.

“Integrating location into lower-funnel mobile messaging can do a lot to drive foot traffic,” said xAd CMO Monica Ho.

For now, retailers would do well to preempt any wariness on the part of consumers by embracing location marketing as part of an omnichannel view of the path to purchase; from there, it’s all about communicating with shoppers across touch points to maintain a relationship with them until the economy finally stabilizes.

About The Author
Lauryn Chamberlain Lauryn Chamberlain @laurynchamberla

Lauryn Chamberlain is the Associate Editor of A New York City based journalist, she specializes in stories related to retail, dining, hospitality, and travel.