Craig Sears-Black, managing director of Manhattan Associates writes for eDelivery on the topic of the UK’s ‘leave or remain’ EU referendum, which takes place in four months time. While he cautions against over-simplifying the issues – and the retail sector too – he thinks one of the most important considerations needs to be the supply of labour.
Retail is not just retail; while some aspects will be affected in the same way, individual sectors will be impacted upon differently. Changes to trade agreements will clearly influence the cost of goods traded across borders. However, due to the importance of the UK market, the risk of this having material impact is likely to be quite low. What will have significant bearing in the UK however, is any change that could result in a reduction of the European workforce.
Removal of EU Working Time Directive Constraints
The application of both the EU Working Time Directive (WTD) and the UK Drivers’ Hours legislation has the effect of creating a very complex compliance environment. The UK is not unique in this regard – each country has its own drivers’ hours legislation – but a relaxation of some of the WTD constraints may give more flexibility for transport operations to plan more efficient routes and better utilise driver shift hours, which could make UK transport slightly more efficient than in other countries.
Within warehouse operations, again, the removal of WTD constraints may also provide for a more flexible workforce and have the potential to increase productivity.
On both these fronts there would be the need for renegotiation with Unions, and of individual working terms and conditions, to ensure that any changes to shift hours do not negatively impact on Health & Safety of the workforce.
The EU as a Single Market
Retail is becoming increasingly global but not increasingly European, as evidenced both by the rising number of foreign fascias on UK high streets and of British brands in malls around the world. In fashion and luxury, for example, brands such as Mothercare, Ted Baker, Burberry, Mulberry, White Company, Paul Smith and Arcadia continue to expand on a global, rather than European, basis; while Europe is an attractive single market, it is not the fastest growing market, and much UK investment has instead gone to expanding in the Far East and USA. The strength of the local country economy is therefore far more important than the ‘Single Market’ factor; who would have prioritised capital investment in Spain over China in the last 10 years?
Within Grocery the investments made by Aldi and Lidl to expand into the UK market were successful because there was a gap in the UK market exposed by a recession, which UK supermarkets were not fast enough to respond to. The Single European Market was not a factor in this decision; Aldi has invested far heavier in their expansion in the USA, demonstrating their focus on market potential over the Single Market itself. Retail investment decisions will therefore continue on the basis of growth opportunity and ultimate market potential regardless of the referendum outcome.
There is a clear benefit to shoppers from other European countries being able to purchase goods in the UK without tax implications. However, the most lucrative market for tourist shopping in recent years has been the Far East, where the variety of premium luxury goods is superior in London. The attractiveness of central London for tourist shopping has always been strong, but how much has this been influenced by our membership of the Common Market and how much has been influenced over the years by the prevailing exchange rate and the genuine quality of the world-leading shopping experience?
Exit from the EU would probably be more of an inconvenience than have a material impact on the profitability of UK retail as a whole.
The EU Workforce
Retail is the single biggest employment sector in the UK and retailers continue to struggle filling vacancies within every part of the retail supply chain; workers from all over Europe have been vital in the last 20 years to achieving growth in the sector. Any significant change in the availability of this workforce will therefore have a direct impact on future growth potential. Some professions, such as HGV driver, are already in crisis due to an ageing workforce and lack of younger workers joining the profession to replace them – there is a reason noticeboards in many retail distribution centres are multi-lingual.
Reducing this workforce will drive up wages and, in turn, retail prices, putting at risk those retailers unable to respond through increasing efficiencies or collaboration to increase effective scale. As a result, the organisations that have achieved growth on a global scale, such as Amazon, could increasingly dominate the retail landscape.
Whereas a retail market is formed by a collection of demographics, the Single European Market – when taking into account the number of spoken languages it encompasses – is defined only fiscally. Retailers will therefore continue to make investment decisions based on growth opportunity alone, which has so far not been directed into European markets.
The most important consideration for retailers, should the UK leave the EU, is the impact this will have on workforce rather than on the market itself. A contingency plan must be put in place to plug any loss of the European workforce and ensure industry growth does not lose momentum as a result.