Next has released a detailed analysis of the impact of a no-deal Brexit, but it completely misses the point – it isn’t disruption to the continued supply of its clothes that the UK’s divorce is threatening, but the demand for them.
The 11-page report details the risks to its business from import duty changes, increased administrative costs and delays at ports. It concluded that Next “do not believe that the direct risks of a no-deal Brexit pose a material threat to the ongoing operations and profitability of Next’s business”.
Brexit impact on retail: What would a no-deal mean for Next?
And yet, though CEO Lord Wolfson was a Leave campaigner during the referendum, it appears very strange indeed that the report has no mention of the impact on food prices that a no-deal Brexit could cause, and the direct consequences that would have on Next, and indeed all clothing retailers.
Supermarket bosses warned the Treasury in August that the price of a food shop could rise 12% in the event of a no-deal Brexit. If anything close to such inflation came to pass, the ability of consumers to buy non-essential items, as well as their confidence to do so, would be seriously impaired. It is this impact, which is becoming ever more realistic as brinkmanship escalates between the UK government and the EU, that Next and other retailers should be concerned about.
The detail and transparency that Next employs in communications is admirable – as is its ability to show how it can deal with future possible scenarios. In January it published data showing what the impact on its profits would be should store like-for-likes continue to plummet, something its mid-market competitors would never dare to reveal.
In terms of Brexit, it acknowledges the risks to sterling but points out that it is well hedged for next year, and, as its imports are 90% non-EU, concludes that there is little cause for alarm regarding product cost inflation. The largest risk, it thinks, is delays at UK and EU ports as a result of increased customs declarations for other companies.
Perhaps the main intention of the report was political, as it made calls on the government to temporarily raise import thresholds for goods brought into the UK by small importers – so that they avoid customs procedures and don’t slow down the flow of goods into the UK – and to allow more importers to self-assess their customs tariffs and duties, in the same way that they report VAT returns.