The Brexit consumer has been saved
The Brexit consumer
The Deloitte Consumer Review
In this edition of The Deloitte Consumer Review, we focus on how the EU referendum and the ongoing Brexit negotiations are impacting consumers’ confidence, spending and behaviour. We ask what this means for consumer-facing businesses.
Conveying the consumer voice around Brexit
Brexit continues to dominate the headlines, but how much of a concern is it for consumers? Against a backdrop of a depreciation in the pound, a rise in inflation and low wage growth, are consumers beginning to feel the pinch and do they attribute this to Brexit?
In an attempt to convey the consumer's voice, we have undertaken research to provide some clarity on how consumers view the impact of the referendum, what they feel their prospects are post-Brexit and the key challenges and opportunities facing consumer businesses.
Key findings from the report:
- Brexit ranks sixth on the list of potential areas of concern for the UK consumer, suggesting that consumers have shaken off any negative effect associated with the referendum result.
- The nation has differing views when it comes to how confident they feel following the vote to leave the EU. Remain voters have seen negative
change acrossall measures of consumer confidence; whereas Leave voters have seen positive change across four measures.
- Consumers are presenting a mixed picture about the change in their financial situation over the last 12 months, with 43
per centof respondents claiming it had stayed about the same, 36 per centstating it had got worse and 18 per centstating that it had got better.
- Consumers’ views on their personal finances are polarised between Leave and Remain voters, with 65
per centof Remain voters believing their personal finances will be negatively impacted by Brexit and 63 per centof Leave voters anticipating either no or positive change.
- A significant minority of consumers expect to actively change their spending habits as a result of the Brexit vote. At least 30
per centexpect to reduce their spending across all categories.
- There is a greater
consensus overthe impact of Brexit on the price of goods and services, with a third of respondents expecting price rises across all categories.
What sector specific challenges will companies face as a result of Brexit?
What challenges will the consumer products sector face as a result of Brexit?
A lot will depend on where goods are manufactured and what the target market is. UK-based consumer product companies that are focused on selling to the domestic market may see some input costs rise, but they also have an opportunity to increase market share in the UK if imported goods become more expensive or more difficult to source. Some consumer product businesses will face significant disruption across their international supply chains. Following Brexit it is likely that it will be more difficult to both import and export goods. With potential trade barriers and increased bureaucracy, supply chains could become less efficient and the timeframe for getting goods from the country of origin to the destination may increase.
What can consumer product companies do to ensure that their international supply chains remain efficient?
They will need to proactively manage their supply chains, possibly through enhanced forecasting, and introduce processes to ensure that any disruption is managed effectively. Organisations that operate a just-in-time supply chain or trade in perishable goods are at particular risk as delays to delivery of goods become more likely. However, once companies are able to factor the changes into their supply chain planning and adjust accordingly we expect to see them become increasingly reliant on their third party logistics (3PL) and fourth party logistics (4PL) providers.
What are some of the opportunities for consumer product companies that may result from Brexit?
There is still a lot of uncertainty, however, in the scenario of most change the cost of goods exported from the UK to the EU could increase due to the imposition of tariffs. However, some of this increase will be offset by the fall in the value of sterling which has made many UK-produced goods more competitive. This scenario may also open up opportunities for the UK to negotiate its own trade terms with markets outside of the UK such as China, India and the US, opening up new export opportunities.
What challenges will the retail sector face as a result of Brexit?
The retail sector faces many of the same challenges as the consumer products sector in terms of supply chain disruption, however it’s clear that retail businesses will experience additional challenges. One area of concern being the likely changes to existing custom duties and procedures. The prospect of increased bureaucracy and costs associated with the movement of retail stock across borders has the potential to delay deliveries and add additional costs to products, both of which will have a significant impact on customer experience.
How will post-Brexit consumer spending impact retail businesses?
As a sector, the retail industry is at the coal face in terms of how post-Brexit consumer spending will impact businesses. Our research shows that consumers are concerned about rising prices and many are expecting to change their behavior after Brexit. Any fall in consumer confidence could have an adverse impact on consumer spending, particularly on discretionary goods, meaning that retailers focused on selling big-ticket items like consumer electronics would be under the greatest pressure.
What opportunities are there for the retail sector to prosper?
There are opportunities for sub-sectors at both ends of the retail industry to prosper if consumer spending patterns change. For example, discount and value retailers may see their demand offset and import-cost inflation, whilst luxury retailers may benefit from tourism “dollars” due to devaluation in sterling.
What challenges will the travel and aviation sector face as a result of Brexit?
Post-Brexit, the majority of businesses in the travel industry will be exposed to the same risks as other industries. Potential changes to customs duties and processes as well as restrictions on the movement of labour could impact material costs across their supply chains, while any change in consumer confidence and spending patterns could hit their bottom line.
What specific challenges will this bring to the aviation sector?
UK airlines will no longer enjoy automatic access to the single EU aviation market meaning that their rights to operate to, from and within the EU would need to be provided through new agreements. Renegotiation of these agreements could lead to increased complexity and costs that may ultimately have to be passed on to the consumer. For example, the European Package Travel Directive which governs consumer protection across the EU should an operator fail, as well as other many consumer protection regulations, is dependent on access to the single market. When membership is ceased the government will have to make a decision on what the UK will do, will it follow what Europe is now heading towards or will the UK set its own rules?
What impact will Brexit have on consumers?
An increase in price and fewer available routes will have a knock on effect on travellers. Uncertainty at airports and ports regarding country access with a revised set of border controls being in place, could cause potential delays for passengers getting through customs.
Additionally, Brexit exposes the consumer to risk as it pertains to consumer protection laws. Any changes to how UK travel companies handle consumer protection could have a damaging impact on the customer experience. For example General Data Protection Regulation (GDPR) is expected to be implemented across the European Union by 2018. The UK is likely to have the option of complying with the regulation while outside the EU or implement another potentially more liberal set of rules. UK consumers might also lose the medical insurance cover they currently benefit from through the European Health Insurance Card.
What challenges will the automotive sector face as a result of Brexit?
Loss of access to the single market would expose the UK automotive industry to high levels of risk. The single market continues to be critical to the competitiveness and success of the UK automotive sector especially in terms of ongoing operations within expanding global production options.
How will Brexit impact trade in the UK automotive industry?
Trade is a major concern for the UK automotive industry with over a half of all cars exported from the UK going to the EU market and over 80 per cent of imports coming from the EU. Any barriers to doing business with the EU could cause a significant slowdown of sales. In addition, the movement of raw materials and parts into the UK will be impacted by delays at the border as well as increased costs, resulting in potential manufacturing line stoppages and quality risks.
Potential restrictions to the free movement of people in the EU is also likely to constrain the automotive industry as UK car manufacturers will find it challenging to attract and retain the best talent.
What challenges will the R&D sector face as a result of Brexit?
Labour continues to be an issue as the placement of R&D programmes are frequently influenced by the talent pool of skilled workers, with many UK OEMs’ labour pools made up of 50 per cent or greater EU27 nationals. Existing research programmes will come under threat as R&D funding from European sources is likely to be cut or disrupted, whilst leaving the single market will mean future UK participation in EU research programmes is less likely.
What impact will Brexit have on automotive consumers?
As well as impacting businesses, the UK consumer will also be directly affected. For example, one in three newly registered vehicles in the UK is a German export. Cost increases associated with changes to customs duties (both supplies for UK production and finished good imports) could see prices increase by thousands, hitting the UK consumer in the pocket.
To Do list
|A ’wait and see’ approach to Brexit is no longer a viable option - some actions businesses need to take could take 12 months or more to implement.|
|Look at various scenarios that might play out and understand the business exposure against these scenarios.|
|Put in place contingency plans which can be implemented when the likely outcomes become clearer.|
|Assess the business model against potential Brexit impacts by planning for the scenario of maximum change.|
Customer loyalty: A
Consumer data under attack: The growing threat of
Made-to-order: The rise of mass personalisation - July 2015
The growing power of consumers - July 2014