The majority of UK retailers say their supply chains are not prepared for a Brexit and many expect it to have negative impacts on their organization, according to a recent survey conducted by Barclays. Retailers cited supply chain cost increases, import price fluctuations and potential labor shortages as possible ways Britain's departure from the European Union would negatively impact their company.
Overall, approximately 52% of retailers said their supply chains were unprepared for Brexit, according to the survey. About 36% said their supply chain organization was “as prepared as we can be” and 13.2% said they felt prepared for Britain's exit. Barclays says the results suggest the UK retail is waiting or clarity on any long-term impacts of a Brexit.
While there will no doubt will be some wait-and-see for the retail industry and other UK industries, over 44% of retailers in the Barclays survey already expect Brexit will negatively impact their organization. Retailers predict their supply chain will be most negatively impacted by fluctuations in currency following a Brexit — 81% of retailers surveyed said Brexit would negatively impact the organization’s ability to manage foreign exchange rates.
Supply chain labor is another big concern among retailers. Nearly 65% of retailers said Brexit would negatively impact the company’s ability to find enough labor for supply chain operations. Nearly 56% of retailers said Brexit would impact the organization’s ability to find quality supply chain staff.
Retailer worry about import prices, too, following a Brexit. Almost 70% of retailers said Brexit would have a negative impact on import costs. Just 3% said it would have a positive impact on import costs. Retailers do not seem to be as concerned about export prices, however. About 20% expect a negative impact on the cost of exporting goods, compared to the nearly 31% who believe Brexit will have a positive impact on export prices.
Dealing with administration and red tape and selling products overseas are other aspects of the supply chain retailers expect to be negatively impacted following a Brexit.
Changing Suppliers, Location of Purchasing Activity
While many retailers say their supply chains are not ready now for a Brexit, some are taking steps to prepare for expected changes. For instance, nearly a third say they are changing suppliers or sourcing goods from different countries. However, just 13% say they are moving manufacturing capacity to different locations, and 16% said they would relocate parts of their supply chain operations in light of Britain's decision to leave the EU.
Many procurement and supply chain organizations were looking to Eastern Europe as a sourcing destination prior to the Brexit vote, Barclays pointed out in its report. In fact, nearly half of the retailers surveyed by Barclays had planned to increase sourcing in this regions before Britain voted to leave the EU.
Post-Brexit vote, however, many retailers are looking to India. Barclays said more than 51% of retailers expect to increase purchasing activity in India — up from the 42% of retailers that planned to do so before the Brexit vote. Conversely, Brexit may end up encouraging more retailers to source domestically, despite it being more expensive to do so, Barclays said. About a third of retailers said they plan to increase domestic sourcing activity post-Brexit.
Additional Changes Retailers Plan to Make
Other steps retailers are considering in light of Brexit include streamlining and cutting supply chain costs (identified by 77% of retailers), hedging currency (71%) and reassessing product mixes and product ranges (17.6%).
In terms of responding directly to cost changes due to Brexit, the majority of retailers (69%) plan to streamline their supply chain to mitigate potential cost increases, while 65% said they would make savings elsewhere to offset any cost increases. Fifty-three percent of retailers said they absorb the cost increases internally, taking a hit to company margins. Almost 40% of retailers also plan to renegotiate terms with suppliers to reduce costs and 35% plan to make up for delivery and fulfillment costs by increasing prices for customers.
There still remains a high level of uncertainty for retailers and other industries on how exactly Brexit will impact business. However, the Barclays report said the Brexit vote is encouraging companies to take a second look at supply chain operations, which can be a good thing.
“With new plans for reassessing product operations and streamlining costs in the wake of the referendum result, the changes could even act as a positive catalyst for increased efficiency within the supply chain,” the report said.