Recent research suggests that affluent households in the UK might not be as concerned about Brexit as their luxury suppliers believe them to be.
With barely seven months to go until Britain exits the European Union, British e-retailer Farfetch announced an initial public offering (IPO). This global luxury retailer was not going to float on the London Stock Exchange, however, but the New York Stock Exchange. This surprise move has left many in the British luxury industry unnerved as a major player exits the UK ahead of Brexit.
But Farfetch’s move may have nothing to do with Brexit, say industry analysts. Farfetch is more of a tech company than a retail one, they argue. It therefore sits better on the same stock market as the FANGs (Facebook, Amazon, Netflix, Google). Besides, the company’s founder and CEO, Jose Neves has already said that he is committed to keeping both operations and headquarters in the UK.
As excitement surrounding Farfetch’s news faded in late August, Aston Martin announced something more positive. It was going to list of the London Stock Market, showing that the company was more traditional luxury than anything else, Aston Martin’s chief executive Andy Palmer told the BBC, “We are a luxury company and not just a car company.”
Not that car companies are doing badly in the face of Brexit. H.R. Owen, a British dealer in Ferraris, Lamborghinis and Bentleys, has seen its profits double in the past year, thanks to buoyant spending by wealthy individuals. Its CEO Ken Choo told the FT, “The ultra-luxury segment is still growing and they want more.”
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Increased Luxury Spending
Choo’s comments echo a recent study by YouGov that shows that affluent households in the UK were only second to Hong Kong in increasing luxury spending over the past year.
“We measure 13 countries in the YouGov Affluent Perspective Global Study,” explained Cara David, a managing partner of YouGov. “Hong Kong saw the highest increase in luxury purchasers (+18% in luxury purchasers). The UK was second, with an increase of +13 – from 56% in 2017 to 69% in 2018.”
The same survey found that affluent households in the UK, which earn £100,000 or more a year, might not be so concerned about Brexit as their luxury suppliers believe them to be. Thirty-five percent of those polled said they were not very or not at all concerned about Brexit, verses 19 percent that said they were.
Those same luxury suppliers, however, have more to worry about than the attitude of their affluent customers when it comes to Brexit. Walpole, the official sector body for UK luxury, listed five ‘business priorities’ the government needs to consider in its Brexit whitepaper. Foremost of these is international trade and investment, which the UK luxury industry requires for exporting its products. Walpole estimates 78 percent of UK luxury products – or £25bn – are destined for overseas markets, much of them within the EU.
Importation Problems
Any tariffs or duties imposed on British trade in the event of a hard Brexit would be devastating, explaines Helen Brocklebank, CEO of Walpole: “For brands that import raw materials from the EU and export their final products back, the prospect of double customs tariffs, delays in deliveries and the inability to schedule workloads has been described to us having a ‘quick, fatal outcome’”
An industry that relies heavily on talented craftsmen could also be hampered by any immigration restrictions. Walpole estimates the British luxury industry employs 110,000 people and 90 percent of UK luxury brands employ non-UK EU nationals in their business. “Changes to free movement of people will therefore have a considerable impact on both daily operations and the sector’s ability to attract top talent, as well as the creative and cultural diversity of teams,” explains Brocklebank
Burberry’s president and former chief executive Christopher Bailey has also spoken on the dangers of restricting talented EU nationals from working in Britain: "Being able to share ideas, to collaborate with people from other cultures and countries, is fundamental to any creative business," he told the BBC.
Burberry is among the British-listed luxury manufacturers that have seen their share prices increase since Theresa May triggered article 50 in March 2017. The simultaneous decline in the value of sterling has made British luxury cheaper to the rest of the world, something that has bought more visitors to the UK. According to the Office of National Statistics (ONS) the number of people visiting from abroad in 2017 hit 39 million, up four per cent from 2016 and the highest figure ever recorded. Many of these tourists might be visiting to visit or buy quintessential British brands, explains Brocklebank: “British luxury brands have enormous ambassadorial power for Britain and each one of these products says something profound about the creativity, entrepreneurship and craftsmanship of Brand Britain.”
While Brexit has been positive for much of British luxury to date, most in the industry are still cautious. After all Britain has not yet Brexit-ed and details are far for certain.
Cover image credit: Pexels.
