Brexit’s Retail Mess: You Can’t Move a Supermarket to Frankfurt – Bloomberg


You may be interested in the below article from Bloomberg:

Brexit’s Retail Mess: You Can’t Move a Supermarket to Frankfurt

.         Import-reliant U.K. retailers struggle with contingency plans

.         No-deal Brexit could cause port delays and empty shelves

Banks can hightail it from the U.K. For retailers threatened by Brexit, it’snot so easy they’ve got to stay put even if a disorderly departure from the European Union clogs trade routes and empties store shelves.

As the U.K. charts an increasingly erratic course toward Brexit, retailers like Tesco Plc, J Sainsbury Plc and Next Plc that sell a significant amount of imported goods are bumping up against the limits of contingency planning. “We’re far more worried about the government’s ability to deal with any increase in customs administration than we are with our own ability to deal with it,” Chief Executive Officer Simon Wolfson of apparel chain Next said in an interview. “There’s a real risk of ports grinding to a halt, and that would make life very difficult for all retailers.” The overwhelming majority of clothes and almost half of the food consumed in the U.K. are imported. With insufficient domestic manufacturing capacity to meet the country’s demand, there are no easy workarounds if the U.K. falls out of the European Union without a deal in 2019.

No-Deal Damage

Every day almost 700,000 inbound shipments would require border checks if the U.K. leaves the EU without a deal, the British Retail Consortium said. Officials at Dover, the country’s busiest port, warn that an extra two minutes to clear trucks through customs could lead to 17-mile (27-kilometer) traffic jams. “Dover is not ready for food products needing to be checked and you can’t just click your fingers and double the number of British strawberries or potatoes,” BRC policy adviser William Bain said. Under the current customs arrangement retailers can order tomatoes from the Netherlands at lunchtime and have them shipped across the English Channel in time to appear on shelves the next day. Grocers Tesco, Sainsbury and Wm Morrison Supermarkets Plc have mapped out alternative sourcing locations for some goods that could face the biggest tariffs such as 40 percent on Irish beef if the U.K. leaves the EU without a deal and falls back on World Trade Organization rules. They could sell more domestic beef, but the rush to secure supplies might push up costs.

Sainsbury CEO Mike Coupe has warned that laborious customs procedures would mean higher prices and lower quality. The government hadn’t fully recognized the risks, he told the U.K.’s Press Association in September. Prime Minister Theresa May says a transitional trading arrangement will not be put in place until a final Brexit deal is reached. Grocers will need to lock in new suppliers next year to avoid being caught out in the event that no deal is reached. That requires a range of onerous checks, from auditing labor standards to ensuring goods can be delivered in the right sizes. Even if suppliers clear those hurdles, delays at ports mean supermarket operators may not be able to get some produce into stores. Executives say privately that a no-deal scenario, which some Brexit hard-liners favor over making concessions to the EU, is inconceivable because of the damage to the industry.

The U.K.’s proposals to develop a computerized system to pre-notify ports of incoming shipments and to minimize checks on goods exported by pre-authorized businesses in the event of a no-deal Brexit raise more questions than answers, Bain said.

Unknown Unknowns

Clothing sellers are also looking at ways to avoid incurring tariffs. Both Next and online retailer Asos Plc, which generates 63 percent of its sales outside the U.K., are considering bulking up inventories at warehouses in Germany to serve international customers. That wouldn’t help them get jeans and dresses to British shoppers.

Ted Baker Plc‘s finance director Lindsay Page said there’s still little merit in detailed contingency planning given the range of potential Brexit scenarios, and that the retailer had decided to focus on international growth. N Brown Group Plc CEO Angela Spindler said “over-focusing” on Brexit in the short and medium term “isn’t constructive given the huge unknowns.”

Despite this lack of planning, Brexit’s potential impact looms large over an industry that’s battling to retain its share of Britons’ spending power, which has been crimped by the falling pound, rising inflation and stagnant wages.

“Consumer confidence is already brittle and retail is a marginal business,” independent retail analyst Richard Hyman said. “Even a relatively small further softening of demand would cause quite a bit of fallout.”

Jetting Off

In other industries Brexit’s potential consequences are clearer and companies have begun to act decisively. Some banks are shifting workers from London to Frankfurt, Paris or other locations inside the EU in order to keep doing business there. EasyJet Plc created a new Vienna-based airline to ensure it can keep flying routes within the bloc.

While Next’s Wolfson voiced his support for Brexit in the run-up to last year’s referendum, most retail executives were more circumspect for fear of alienating potential customers. Since the summer the BRC has stepped up lobbying, calling on the government to ensure smooth, tariff-free trade and continued access to EU migrant labor. Unable to leave, some retailers are clinging to hope.

“It’s all going to look a bit ‘eleventh hour’ but I think we’ll end up with a transitional agreement,” Seb James, CEO of the U.K.’s largest electronics retailer, Dixons Carphone Plc, said last month. “It wouldn’t be good for anyone if we didn’t.”