The impacts of Brexit for your fashion business

According to Oxford Economics, the fashion industry as a whole, is worth £28bn to the UK economy and it is widely reported by leading figures and organisations throughout the UK, that Brexit will likely affect the industry negatively. How will this impact individual businesses? At the moment, there is much uncertainty about the type of relationship that Britain will have with the EU after Brexit, however two of the biggest impacts for fashion businesses will be on it’s relationships with workers and the international supply chain.

Fashion businesses are highly reliant on people, with the whole industry fuelled by creativity, development of relationships, specialised skills in manufacturing and they are especially reliant on EU workers. For the UK as a whole, 6% of all employees are estimated to be EU nationals. However it is likely to be almost double that for the fashion industry, and for certain segments, much higher still – it’s been estimated that of the 13,650 apparel manufacturing jobs in London, 70% of these are filled by EU nationals.

Anecdotally, there are already reports of skilled EU workers leaving in the wake of the referendum result and should Westminster indicate that future immigration controls are likely, then we will see more workers leave. This leaves gaps in the fashion workforce that will be difficult to fill – positions which revolve around creativity and relationships are usually highly dependent on the specific individual employed. Companies become reliant on these EU staff. Additionally, fashion manufacturing is growing with the industry expecting to create an additional 20,000 jobs in this sector over the next few years. It is well known that the UK lacks a pool of talent in the home population and careers in manufacturing are generally not promoted to young people – this has been partially solved by private companies setting up formal training programmes, but entrants to these skew towards EU workers. These issues will lead to companies being unable to expand to meet the projected future demand. It will create increased competition in the job market which will increase the costs to hire talent.

Over the course of this year, we will start to see the shape of our future trade relationship with the EU. For both fashion retailers and manufacturers, the outcome of these discussions will greatly affect the industry. At the moment, 74% of textiles and apparel exports are to the EU and 45% of textiles and 25% of finished clothing products are imported from the EU, making them the UK’s biggest export partner and one of the biggest import partners in this sector. The modern fashion supply chain is highly distributed, with raw materials, textiles, trimmings, assembly, QC, warehousing and finally retail all taking place in different countries, items being exported and imported many times over before arriving in the hand of the customer. Any changes to the trading regime, where currently importing and exporting with the EU is as simple as sending packages to addresses in the UK, will add extra costs and time to the process.

If there is a hard Brexit and the UK start from scratch again going back to WTO rules, tariffs of up to 20% would be added on to items imported and exported and companies attempting to import would be subject to customs inspections. For a lot of customers in the UK and EU, it is not uncommon that some the components in the clothes they buy will have crossed the UK/EU border a number of times. With the sheer amount of trade that happens at the moment (44% of all UK exports are to the EU, with 53% of imports coming from the EU) the capacity of customs will need to expand significantly, which the government does not appear to have planned for. There is a likelihood that even with rapid expansion of customs resources, there will be additional delays to shipping times, resulting in extra costs for fashion companies. In addition, we have already seen that the vote to leave the EU translated into a direct impact on the exchange rate. Future announcements regarding relationship between the UK and the EU are likely to have large impacts, both positive and negative on currency. This impacts the bottom line of businesses. All these issues combining lead to risks that a number of fashion brands who currently have only warehousing and QC in the UK, may decide instead to open an EU warehouse to cut down on costs and better serve the EU market. The overall situation may lead to increased prices as items are both more costly and more difficult to import, meaning businesses will have to raise prices and risk annoying it’s customer base, or holding prices and making less profit.

At the moment, with little view of our future relationship with the EU, owners find it difficult to make strong decisions to protect their businesses from the effects of Brexit. However, as we are already seeing the effects of Brexit even before March 2019, it is imperative for businesses to assess how they are exposed to Brexit, how this would impact their revenues, costs and profits and take steps now to mitigate these risks.

Commentary by Selena Wu. Originally published in Political Intelligence, newsletter of Fashion Roundtable, a not-for-profit organisation that works to highlight the concerns and requirements of the fashion industry to UK and EU politicians and offering partners political insight and access.

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