LONDON — The newly weak pound: Some call it a blessing, others consider it a big headache. No matter where businesses stand on the matter, the once-mighty British currency is losing ground fast against the dollar and the euro, putting pressure on profit margins but also fueling exports and unlocking new or expanded markets for brands, particularly in America and Asia.
While many designers may be feeling the benefit of the pound right now, they’re still thinking long term, and about the sort of trade deals they’ll be living with in post-Brexit Britain.
Christopher Raeburn, who has been expanding his business in other markets through collaborations with brands such as Disney and MCM, said the weaker pound has presented bigger opportunities for his export markets, “as they have been able to purchase our collection for less. Moving forward, we will be looking to create multicurrency price lists. As a business, we are already looking at ways to position ourselves for different eventualities, sourcing and building relationships in new markets that will hopefully allow us to be more agile in future and in turn protect us, to a degree.”
He said his most recent collaboration with Disney on a range of bags inspired by Mickey and Minnie Mouse has sold out quickly on his own online platforms in a wide range of countries — including many of which the company has never sold to before — and that could be due to the weaker pound.
But while sales may be good, he’s also looking farther down the road. Raeburn — who took his bow at his men’s spring 2017 show in June prior to the Brexit vote in a T-shirt printed with the word “IN,” meaning that he wanted Britain to remain part of the European Union — expressed his concern over the potential of higher taxes placed on British companies that trade abroad.
“We have obvious concerns over future import and export taxes and, in particular, the additional resources we, as a business, will be required to manage and administer the additional controls (and paperwork) around imports and exports. However, there may also be opportunities for businesses in new markets subject to what trading agreements will be negotiated,” he said.
Since Britain voted to quit the European Union in June, the pound has been on a rollercoaster ride, falling against major currencies such as the euro and the dollar due to all of the uncertainty surrounding future trade deals that the U.K. will need to strike with trading partners, and whether it will remain part of the single market.
Last week the pound dropped below $1.21, compared with its pre-referendum level of $1.48 — which was a new 30-year low. On Monday, the pound stood at just above $1.21. It has also lost serious ground against the euro. In October 2015, the pound was trading at 1.35 euros, and today it equals 1.11 euros. HSBC said earlier this month that it expects the pound and the euro to be at parity by the end of 2017.
In addition to the weaker pound, the new trading deals that need to be negotiated as part of Brexit have been causing unanimous concern among young, independent brands that cannot afford to reduce their margins further.
Cozette McCreery, cofounder and cocreative director of Sibling, pointed to small growth in the label’s online sales from overseas markets since the pound went south but said the overall unstable situation is making stockists more wary of placing orders. “One of our main concerns is the overall negative impact Brexit has created with regards to the U.K. as a whole beyond monetary fluctuations. Our stockists in Asia are particularly wary at the moment as all this uncertainty is hardly confidence boosting.”
As for future currency fluctuations, McCreery said she’s concerned. “We always take fluctuations into account when determining our prices, but we’ve never had the pound dip this low since we began trading. In the long term, should taxes and import duties change along with currency rates, then we will be forced to adjust our prices. This is bad news for both our stockists and customers and being a tiny business we can’t afford to eat further into our own bottom line. There is a very real feeling, but this new government frankly doesn’t seem to care about small business working with or exporting to Europe and beyond,” she said.
Patrick Grant of E. Tautz also noted that the brand has taken larger orders than normal from markets such as Japan but he, too, is worried about the longer term. He believes Brexit could have a harmful impact on the country’s clothing manufacturing industry. Grant has recently launched a not-for-profit label, Community Clothing, with high street prices. It has been created with the aim of helping U.K. factories by making use of their resources during factories’ slow periods, thus generating more jobs.
“Leaving the EU and (lack of) movement of skilled people could be very harmful indeed. The greatest long-term threat to U.K. manufacturing is the skills shortage. It is incredibly hard to find and train skilled manufacturing staff, it takes time and considerable skill and expense. And it needs the most skilled staff to do the teaching. If we lose access to the best technicians because the U.K. shuts its border, then I truly believe we will see a reverse of the current upward cycle in U.K. manufacturing,” said Grant.
He added that the drop of the pound might be beneficial for the country’s makers in the short-term, but it will be offset by the rising prices of raw materials. The designer also predicted he will have to increase the prices of E. Tautz by up to 30 percent as the materials used for the label are sourced from Italy, including technical fabrics, shirt cotton and zips.
Linda Laderman feels differently when it comes to fabric pricing. The cofounder and organizer of the Textile Forum taking place this week in London said that the country’s trade has always been subject to the pound’s fluctuations and the difference in pricing will be little felt at the luxury level.
“For the last hundred years, the currency has been up and down and it’s just something you have to live with. When you’re selling fabric at quite a high price, if you have to increase it by five or ten percent because the buying price went up, in real terms it’s not a lot. So in reality there’s a lot of noise out there, but I don’t think you’ll find anybody that’s actually negative about it,” said Laderman.
She added that the current volatile economic situation has also opened up opportunities for U.K. local manufacturers in the U.S. and prompted them to become more creative and invest in design in order to guarantee sales.
British wool and cashmere brands, which were promoting their products at Bicester Village during Wool Week in the U.K., said the weak pound is proving beneficial for companies that source and manufacture locally, but tricky for ones that rely on factories and mills outside the U.K., where they are having to pay in euros or dollar-denominated currencies. The weaker pound is also forcing brands to think about raising prices to preserve their margins.
“I don’t have the option to put my prices up because I work with so many regional boutiques,” said Anna Singh, cofounder of Chinti and Parker, the contemporary ready-to-wear and cashmere brand, known for its colorful intarsia knits. “That said, my international customers are delighted and my U.S. web site sales are up.”
She said her margins are under pressure because she pays in euros for European manufacturing, with the weak pound clearly not buying as much as a year ago.
Victoria Pilkington, creative director of the cashmere brand Brora, said she sources and manufactures in Scotland and relies on her own retail stores, so she’s seen nothing but benefits from the weaker pound. She said the devalued currency has had an “amazing effect” on sales at her Covent Garden store, with a “burst in purchases by tourists.”
She’s also been able to slash the retail price of products in her New York unit by 20 percent. “It’s happy days for the New York consumer,” she said.
Ian Maclean, managing director of John Smedley, one of the largest and oldest textile manufacturers in Britain, sources his wool in New Zealand and said he’s now paying more for his raw materials. Despite that, he has no plans to raise retail prices, as he’s expecting exports of the company’s wool sweaters and cotton separates to increase.
“The weak pound is good for manufacturers and will help exports. I hope the government recognizes this and supports us,” he said.
Zara Juricic, the founder and designer of Crumpet, which sells cashmere knitwear, is using the weak pound to build her business in the U.S. She has a setup where she can ship straight from Nepal, where she sources and manufactures her collections, to the U.S., bypassing Britain altogether.
She also brought up some of the challenges that small companies such as hers have when currencies devalue so drastically. “You have to have a lot of cash on hand to book and buy dollars forward. What we’ll do is keep our dollars as dollars and sell more to the U.S.”
Maria Lemos, director at Rainbow Wave, the showroom which handles sales of labels such as Peter Pilotto, Bella Freud and Harris Wharf London, also mentioned the growing discrepancy between higher manufacturing costs and the attractive prices in foreign markets.
“British designers are now more competitive to American and European buyers after the drop of the pound. However, those manufacturing in Europe are losing margin if they want to maintain pricing. If only more were manufactured in the U.K.,” Lemos said. “If higher export taxes were also actioned it could be detrimental to their businesses.”
Maria Kastani, a creative consultant who represents niche designers such as the London-based Alice Archer as part of her sales showroom, further stressed that designers like Archer are already starting to suffer from higher manufacturing costs.
“Yes it might be cheaper for international buyers to come and buy from Alice Archer. But Alice has to import her materials from abroad and obviously she now pays more than before. Also, her embroidery is all done in Italy, which costs more because of the weaker pound. As a result, her wholesale prices are higher than those of last season,” said Kastani. She added that sales have not seen any increases during the spring buying season despite the weaker pound.
“The market has changed, buyers on a global scale are more cautious and mostly buying things that they or their customers need. This means that they have tight budgets and they will look into collections with a different eye. No one knows how this is going to work out, so we’re all quite cautious in the industry. We’re buying into new brands because there is this need of having newness but no one is going crazy about it,” said Kastani, adding that in such a volatile economic situation, designers will have to rethink their business models in order to survive.