The UK’s vote in June 2016 to leave the EU, combined with the uncertainty of what this will mean for the country’s industries has had a considerable impact on the UK economy.
This impact is being felt across UK industrial sectors including the retail display systems industry. Although in recent weeks Prime Minister Theresa May has clarified the likely form of Brexit and the bill to trigger Article 50 has been passed in parliament, much uncertainty about the possible consequences of Brexit for businesses remains.
The falling pound
The pound fell sharply against the Euro and the US dollar after the referendum result was declared, and the US dollar has experienced fluctuations since the election of President Donald Trump. As the UK relies heavily on imports, this will result in rising prices for manufactured goods and component materials, such as wood and plastics, needed by manufacturers and retailers of merchandising systems. Fuel and energy costs are also rising, which is resulting in escalating costs in transporting and installing the components of retail display systems. Even buying locally is likely to become increasingly expensive because such businesses will have to cope with their own rising costs by increasing prices.
Balancing the costs
The challenge for merchandising system companies such as Peerless is to decide how these rising prices are to be absorbed. Increasing the price of display systems will inevitably mean that the costs will eventually be borne by shoppers. Their wallets are already being hit by rising prices in an economy where above inflation wage rises are for most, just a distant memory. However, if the increased costs are not passed on to the customer profit margins will be severely squeezed. It may be possible to balance the costs by sourcing cheaper alternative component materials, however, reducing the quality of their merchandising systems is unlikely to be an attractive option for most companies.
An advantage of the falling pound is that the UK becomes an attractive market for foreign investors who will be able to get more for their money. Anyone exporting retail display systems or the component materials for the systems may be experiencing an upsurge in business. In the long term it is still unclear as to how Brexit will affect those companies that export display systems or the component materials, as this will depend very much on what future trade deals are agreed with other countries and trading blocks.
Brexit is still very much in its infancy and the rising prices of imported goods are only just starting to be noticed by consumers, and until the final exit terms and trade deals are decided this will remain a period of economic uncertainty – something that financial markets hate. However, it is important that the industry does not stand still. Retailers will still need merchandising systems, perhaps more than ever before to tempt customers into their premises. Companies will have to factor in the rising costs of component materials, taking the difficult decision whether to absorb increased costs or cut the costs while possibly sacrificing some quality, or to pass on the costs to customers.
In these times of economic turbulence companies must be prepared to cope with any change in the cost of component materials as the Brexit process continues.