LONDON — You just keep me hanging on.
That’s just what Theresa May’s government and lawmakers have forced businesses — and consumers — to do as they struggle to find a viable way out of the European Union following 2016’s divisive Brexit referendum.
Investors, retailers, brands and consumers have been hanging on — to their detriment — and could be doing so for a lot longer unless May’s controversial, unpopular withdrawal deal passes by March 20 or members of Parliament come up with an alternative — pronto.
May also has to ask all 27 EU nations to grant Britain an extension of the official Brexit deadline of March 29. If the EU decides not to, which right now seems unlikely, Britain will crash out, deal-less and with more chaos in store.
What seemed like a great idea to 51.9 percent of the voters in 2016 has spelled trouble for businesses and consumers alike, causing fear, anxiety and confusion.
While the plummeting pound, which was trading at $1.48 before the 2016 referendum, $1.30 immediately afterward, and is hovering around $1.32 — may have been a boon for tourism and luxury sales in London, it has pushed sourcing and manufacturing costs for British businesses through the roof and dented smaller fashion brands in particular.
The U.K.’s decision to leave and the interminable withdrawal negotiations have cost businesses money, time and energy and forced them to play an unpalatable waiting game.
Preparing for a no-deal Brexit — and a default to World Trade Organization tariffs of 12 percent on clothing imports from the EU — has been a distraction for businesses. According to George Wallace, chief executive officer of the consultancy MHE Retail, bosses have been left “scratching their heads and thinking, ‘I’ve got to investigate alternative suppliers, I’ve got to look at different storage warehousing, receiving and logistics.'”
Consumers, too, are spooked, shunning stores and counting their pennies: According to Springboard, which measures U.K. retail footfall, last month was the weakest February in the past five years, with footfall dropping by 2 percent.
Commenting on the February figures, Helen Dickinson, ceo of the British Retail Consortium, said while real incomes have been rising over the last year, “uncertainty surrounding Brexit appears to be driving a ‘needs-not-wants’ approach to shopping.”
A marathon three days of voting last week may have bought Britain time for May to build a consensus in Parliament for her deal, but it has done little to reassure businesses, investors and consumers alike.
“There is an overarching need for certainty, and we need a deal done. What we have now is a sense of paralysis,” said Jace Tyrrell, ceo of New West End Company, which represents some 600 businesses on and around Bond, Oxford and Regent streets, one of London’s largest tourist hubs.
Tyrrell, who has just returned from MIPIM, the big real estate show in Cannes, said he was speaking to investors from around the world who are eager to pump money into London commercial property, but they’re holding off for now.
“They want to do deals, but they need to know they’ll get retailers and occupiers in their properties. There’s this sense that everyone is in a holding pattern,” he said.
In London’s West End, the mood is the same, according to Tyrrell. Over the past two years, 50 new brands have landed on the streets that Tyrrell represents, but the bulk of those openings happened when the Brexit negotiations had only just begun. “Of the 50 openings, only 15 happened last year. People are holding off on business decisions, and they’re also concerned about the movement of people and goods.”
On a brighter note, due to the drop in the pound, Tyrrell said the West End will see a “Brexit bounce,” banking 9.2 billion pounds in sales in 2019.
Brexit has also proven a prolonged distraction for May’s government.
Although day-to-day business has rolled on, with the Chancellor of the Exchequer Philip Hammond presenting his spring budget last week, which included 100 million pounds to tackle knife crime and hundreds of millions of pounds earmarked for affordable housing, pressing issues for retailers have been put on the back burner, according to Tyrrell.
Those issues include an updated digital tax-free shopping system (rather than a paper-based one) that would attract — rather than confuse — international customers, and extended Sunday trading hours for retailers in central London, which are paying some of the highest rates of business tax in the country.
Tamara Cincik, founder and ceo of Fashion Roundtable, a fashion industry organization that seeks to highlight problems and potential solutions stemming from Brexit, said she’s worried in particular about small, independent businesses that are struggling to cope with all of the potential changes that Brexit will bring.
Since it was founded last year, Fashion Roundtable has been plumping for “as fluid as possible trade with Europe and single-market access,” what’s known in these parts as a “softer” Brexit, rather than a hard-and-fast exit from the EU. Although MPs have ruled out a “hard” Brexit, it is still a possibility if the EU says “non” to May’s request for an extension to the deadline later this week.
Last week, the government said in the event of a no-deal Brexit, it would move to make 82 percent of imports from the EU tariff-free, down from 100 percent right now — a temporary measure to ease the shock of a crash-out. Some 92 percent of imports from the rest of the world would pay nothing at the border, up from 56 percent now.
Big companies such as Burberry have been putting contingency plans in place and doing their part to appeal to May on behalf of the fashion industry, which directly contributed 32.3 billion pounds to the U.K. gross domestic product in 2017 and employed almost as many people as the financial sector with 890,000 jobs, according to Oxford Economics.
Cincik said she’s also thinking about the fate of the 59,000 SMEs, or small and medium-sized businesses, in the U.K. that do not have the infrastructure to support the stacks of paperwork that go along with preparing for post-Brexit exports and sales. “They are being beset by confusion about what they do with logistics and with paperwork,” she said of these businesses.
She’s also concerned about what would happen in a no-deal scenario, when the U.K. could potentially be flooded with tariff-free goods from abroad. “What’s that going to do for British brands?” she said.
She’s not the only one who’s concerned about the consequences of a hard Brexit.
“Business wants [the withdrawal deal from the EU] resolved now, so any extra time must be used by MPs to craft a solution that protects livelihoods and communities across the U.K.,” said Josh Hardie, CBI deputy director-general.
“No one wants this to drag on, but faced with the choice of a harsh ‘no-deal,’ businesses will back an extension every day of the week,” he added.
Some small, independent businesses have already taken charge of their own destinies, making significant decisions over the past few months as politicians fought with each other and frittered away precious time.
The Scandinavian design and lifestyle company Klaus Haapaniemi & Co. on Redchurch Street in East London has been open since 2013, but is closing this month due to Brexit uncertainty and looking for more favorable conditions on the Continent.
Retailer Simon Burstein has recently hopped the Channel to open the first foreign outpost of The Place London, his luxury fashion concept store, at 8 Rue de l’Odéon in Paris. The Place London stores (in London) remain open.
“There is great opportunity in retail right now,” he said during an interview to mark the Paris opening. “I’m all for having people discover, come in and have a nice time — or buy online. I’m here to do business.” He has set up a French web site with prices in euros, and plans to ship products from the U.K., and offer a click-and-collect service at the Paris store.
His next stop? New York.
The British contemporary men’s clothing brand Universal Works, which has three stores in London and one in its hometown of Nottingham, England, has taken charge of its future, moving its logistics base to Portugal in order to swerve the 12 percent WTO tariffs that would eventually drop into place in a hard-exit scenario.
Universal Works’ largest single market may be the U.K., but the bulk of its wholesale business, manufacturing and supply chain is based on the European continent. It’s going to do most of its buying and selling in euros and has set up a separate company in Portugal and even purchased property there.
“We, as a company, had to make preparations and plans even if, as a country, we seem unable to make any decisions at all. We knew things were going to change — and that we had to deal with it,” said David Keyte, cofounder, director and designer at Universal Works. “We could no longer afford to think we could bring our stock from Portugal to the U.K., pick and pack it here, and then ship it from the U.K. to Paris or Berlin or Düsseldorf or Milan or Rome. So we moved all of our logistics to Portugal.”
Keyte said that while he hasn’t had to make any layoffs in the U.K., he did create jobs in Portugal that could well have been based in the U.K. He said he’s disappointed, too, that he’s had to abandon the pound for the euro.
“I’m dealing less in pounds than I used to, and those things do have an effect on the country, eventually. We’re a very small, tiny cog but if every tiny cog does that then — suddenly — the economy has gone down by 10 percent – and we’re all struggling.”
Other brands have decided to invest in London regardless of Britain’s future relationship with the EU.
Last week, Sergio Rossi opened on Mount Street, while Balenciaga opened a second London unit on Sloane Street. The Turkish accessories brand Misela Istanbul, which specializes in leather accessories, with prices ranging from 100 pounds for pouches and 2,000 pounds for bags, will open a store on Mount Street with an event next week.
Wallace of MHE Retail, said last week’s votes to extend the Brexit withdrawal deadline and to rule out a no-deal Brexit have likely reassured businesses.
“I think in the last six months quite a few businesses have put in place contingency plans. Certainly the bigger companies have got alternative sourcing and warehousing arrangements, and while the frustration level is high, the level of preparedness is higher,” he said.
“I also slightly sense that many in the public just want to get on with it. I think businesses are quietly a little bit more relieved now than they might have been. Still, anything could happen — we could crash in two weeks with no deal.”
The U.K. will have more visibility of the future over the next few days when MPs will vote for the third time on May’s withdrawal deal.
If MPs approve May’s Brexit deal — the same one they rejected twice — by March 20, any extension would likely last until June 30. To push her deal over the line May might be forced to offer her resignation as prime minister — and hand over the job to a stronger leader in her party.
If parliamentarians reject May’s deal for the third time, the prime minister will give them the chance to vote on how they want to proceed with Brexit. That could mean an alternative deal — or a second referendum that could cancel out Brexit altogether.
In any case, all 27 EU states will have to agree to a deadline extension, and the Europeans certainly haven’t given up their game of hardball with the Brits.
French President Emmanuel Macron has repeatedly said Britain would need to justify the extra time, and that the EU would not renegotiate May’s withdrawal agreement. The Dutch Prime Minister Mark Rutte argued on Friday that the British need to “explain how they plan to ensure a different outcome” if they want more time.
Businesses could be hanging on for quite a while.