5 ways Brexit will impact the Fashion Industry
It’s only a few days until Britain votes in the EU referendum. Months of political in-fighting, fact-checking and a bizarre thames flotilla battle will conclude on June 23rd when the British public decides whether to leave or remain in the European Union. I bet I know what you are thinking: why should a fashion company care about a possible Brexit? Well, while our politicians may not be the most fashionable bunch (I’m looking at you Boris Johnson), politics greatly affects the fashion industry, and The EU referendum is no exception. Still don’t believe me? Just look at the subtle references to the debate at London Collections Men SS17.
So, to help you make a decision next Thursday, here are five possible implications of a Brexit on the British fashion industry:
- Clothes will be more expensive…
One of the most immediate effects of a Brexit will be a depreciation in the value of the pound. The Bank of England issued fresh warnings this week that the pound will fall sharply if Britain leaves the EU, echoing HSBC’s prediction that a Brexit could wipe a further 20 per cent off sterling’s value. Such a fall would significantly impact the profit margins of fashion businesses, as they generally purchase their goods in dollars from Asian suppliers. According to UBS analyst, clothing and home furnishing retailers source 75% of their stock from suppliers in China and South Asia. Therefore, if the value of the pound falls, fashion retailers will have to spend more money to buy the same amount of stock. This will make clothes more expensive since retailers will likely pass on the extra costs to their shoppers. The same scenario applies to businesses who outsource production of their designs to Asia.
Of course, retailers will have the chance to negotiate better prices and search for other suppliers. However, this will take time and may not even be enough to cover the costs left by a depreciating pound.
2. …but British fashion businesses could make more money from exports
Companies that have a large presence abroad such as Stella McCartney could see an increase in profits due to a Brexit-induced fall in the pound. According to Luca Solca, head of luxury goods at Exane BNP Paribas, if their costs are largely in pounds but revenues are generated in euros or dollars, these euros or dollars would buy a larger amount of pounds.
3. A potential loss of investment and talent into the UK fashion industry
The British fashion industry benefits from EU investment, such as research funding via Horizon 2020 and financial support for new businesses through COSME. Our world-renowned fashion schools have easy access to the best design talent across the European Union because of the principle of free movement of persons. As a result, EU students can freely relocate to the UK without worrying about high international or immigration fees. However, Brexit could undermine our ability to attract such top talent as it will become more difficult and expensive to study in Britain. One could also argue that it could affect the credibility of our fashion schools but then again, just as Oxford or Cambridge proves, cost is not enough to put off the top talent from applying to the best schools. Yet, if European students are being priced out of an education in fashion, it will further undermine the diversity in the industry.
In addition, European students do not just come to the UK to attend our leading fashion schools, but also choose to set up their businesses here. Some of the biggest British talent are EU immigrants to the UK, such as Greek designer Mary Katrantzou, who graduated from Central St Martins in 2008 and was recently awarded the BFA for Emerging Talent. Other prominent EU designers based in the UK include Roksanda Ilincic from Serbia and Marques’Almeida from Portugal. Such talent is essential in maintaining London’s position as the fashion capital of the world.
4. Fashion companies may leave the UK
EU’s open borders allows fashion companies like Paris-based Céline to operate on both sides of the English Channel. Therefore, a Brexit could make it more difficult for European brands to establish their headquarters or creative departments in the UK.
5. Changes to existing trade regulations
The UK benefits from favourable trade terms with over 60 nations, as a member of the EU. If the UK decides to leave, the government will need to urgently renegotiate agreements with both EU and non-EU nations so as not to disrupt textile and clothing trade flows. Unfortunately, this is likely to take time, especially if the UK is viewed by the world to have lost its economic bargaining power. However, this is not to say that renegotiation is impossible. Norway proves that Britain could establish favourable trade agreements with existing partners, despite being outside the EU. Still, what these agreements will look like is very much uncertain.
Ivana Ojukwu is COO of See Fashion. Voting for the EU referendum takes places on Thursday June 23rd 2016. For more information about how to vote, please visit AboutMyVote.
