After Brexit and brands: the fashion  luxury industry is facing new challenges 

#London : The impact of Brexit on the fashion industry is daunting, brain-scrambling and multi-levelled. The industry directly contributed £28bn to the UK’s economy in 2015 and employs 880,000 in roles from manufacturing to retail. For many British designers and stores, there will be an immediate hit on costs and margins. Once Brexit has been achieved, it could jeopardise design talent and retailers within the global marketplace forever.

During the campaign the British Fashion Council (BFC) reported that of the near-500 designers it polled, 90 per cent planned to vote for Remain. “I was surprised as anybody by the result of the referendum,” says Paul Smith. “Without question I am loyal to Europe. I’ve shown my men’s collection in Paris since 1976 and buy fabrics from Italy and elsewhere in Europe. We decided to buy currency before the polls opened, which has put us in a strong position.”

In the short term, some in the industry are happy. The fall in the pound is good news for retailers that have a large tourist pull, with Harrods reporting a strong start to its summer sale. There is some respite also for Burberry, which in May announced a £100m cost-cutting drive after a 10 per cent fall in profits. “Burberry should benefit from a weaker pound, given significant currency imbalances,” said Thomas Chauvet, luxury analyst at Citi.

Luca Solca, head of luxury goods at Exane BNP Paribas, calls this positive effect “margin tailwind”. But he sounded a note of caution: “Brexit, and the turmoil in financial markets, is likely to have negative repercussions,” he said, reflecting the bank’s revising down of 2016-17 growth estimates. “Consumers may pause before spending, and businesses may pause before committing to capital investments.”

Buyers and retailers are nervous about speaking openly — they want consumers to continue shopping as if nothing has happened. Off-the-record, a senior figure in a multi-brand luxury retailer talked of the concerns. “We woke last Friday in a much smaller world. The free movement of people is fundament­al to the success of our business.”

Currency volatility is a huge worry. In this global marketplace, stores work with extremely complex business models, especially dotcom retailers, which buy and sell in multiple currencies. “Store buyers placing orders for brands that are paid for on delivery will be concerned about price. If this is the price now, what will it be in six months?” the retailer continued. “We’re still trying to work out what the margin impact is.”

Meanwhile, the only way many young British designers can afford to make their products is by having them manufactured abroad. This will now be more expensive.

Bureau Report