Impact of Brexit on Pricing Strategies and Buyer Behaviour in the UK Fashion Industry

Impact Of Brexit On The Pricing Strategy And Buyer Behaviour In The Fashion Industry In The UK

Table of Contents

Executive Summary

Introduction

Influence of Brexit

Real World Comparison

Research Approach

Conclusion

References

The purpose of the research is to discuss the influence that Brexit will have on the pricing and clientele behavior in the UK fashion industry. The research report helps expose the actual dilemma of the fashion industry in the face of an economy affecting the decision by the larger British society. The research question formulated is: How Will Brexit Influence Pricing Strategy and Buyer Behaviour in the Fashion Industry in the UK? The anticipated negatives effects that Brexit will have on the fashion industry makes it a reasonable choice as it brings out the true effect of the event on the British economy. The fashion industry delivers a significant percentage of revenues into the UK economic basket, and as such, it is necessary to establish the real scope of the effects that Brexit may have on its development. The research question ties the gap between the Brexit and marketing by describing the implications it has on customer behaviour in the long term.

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While some people believe Brexit will destabilise most industries in the UK, the fashion industry stands to be one of the ones that will have it harsh. The industry not only relies but also thrives on the international market and will certainly surrender to the effects of trade restriction and a diminished operation area. For this reason, fashion companies in the UK continue to push the government to negotiate a deal that allows for some access to the European market. The study will conduct secondary research through a systematic review of various literature published on the subject. Research designs require extensive analysis of previous scholarly studies, which provided expert opinion regarding the research problem. It will assist in the description and understanding of social impact in the UK. The use of secondary sources in research goes hand in hand with the qualitative research method.  

Introduction

The future of the fashion industry in the UK remains uncertain at present. In itself, the fashion sector symbolises the range of the creativity inserted in the British society, which the industry produces and sells to the outside world (Turker and Altuntas 2014, P. 838). However, the industry is one of the major sectors in the UK that stands to lose their standings following the exit of Britain from the European Union (Breinlich, Leromain, Novy, Sampson, and Usman 2018, p. 4). In part, production within the industry relies on raw material, labour and market for the finished good mostly sourced from other countries as the local market remain largely unreliable. The basis for the choice of the fashion industry for research comes from the fact that its production and subsequent growth centres considerably on the European market.

The history of the fashion industry in the UK goes back to the 1980s and particularly, 1983 following the formation of the British Council. Later in the year, the London Fashion Week was created, further establishing Britain as a fashion hub in the international market (Gornostaeva and Rieple 2014, p. 38). The latter initiatives provide a platform for the showcasing of unparalleled talent in fashion and design. The British Fashion Council 2015 – 16 Annual Review (2015, p. 8) estimated the value of the fashion industry at £28.1 billion in 2015. Latest reports, however, indicate an increase of more than £4 billion in 2018 (Strijbos 2018).  The industry enjoys a high standing and contributes significantly to the overall British economy according to the British Fashion Council (McRobbie 2016, p. 936). The industry employs slightly more than half a million people in the various sub-sectors such as wholesale, manufacture and retail with the latter providing the bulk of employment opportunities. Some of the most influential fashion companies in the UK industry include Burberry, Mark & Spencer, Next Plc, and ASOS. The goods produced and sold range from leather goods, clothing to footwear.

The United Kingdom has become a force to reckon with in the fashion industry within Europe and beyond, stiff competition from its equally able allies and rivals Italy, France, United States, and Spain (Ahar Clement 2016). In the past, fashion companies in the UK collaborated with manufacturers from outside the region. However, events in recent time have seen the companies shift their focus to local manufacturers. Two years ago, the UK voted ‘leave’ to signify that the citizens favoured exiting the European Union (EU), the regional block that facilitates business between the member states with a 52% majority (Hobolt 2016, p. 1260). Players in the British fashion industry lost in the Brexit campaign despite voting overwhelmingly for ‘remain’ (Dodds 2016, p. 361). Referred to as Brexit and formed from the combination of two words ‘British’ and ‘Exit’, the withdrawal from the European business block is set to have significant implications for the nation. 

Certainly, Brexit promises to shake things up a little and (Cuadros, 2018, p.130) and the relationship between the UK and the rest of the block may fall. Significant yet is the implication that this move will have on the fashion industry, which depends on the block for sustainability to a remarkable extent. Already, conspicuous players in the industry have voiced their concerns on the withdrawal and the consequences that businesses in the industry may have to endure (De Jonquières 2016). Essentially, the UK presented their withdrawal case citing  elements in business operation such as pricing, manufacturing, employment issues, and trade. Further, the UK continues to worry about what will become of its intellectual property – copyright, talent, and patent – upon their exit from the union since the latter controls most of it. Cuadros (2018, p.131) accentuates that intellectual property is one of the most significant factors in the Fashion and design industry and an individual’s right to ownership is a major influence. The exit of Britain from the block will no doubt affect all these factors. Spinello (2007, p. 13)

Another significant issue is the restriction of the free movement of personnel and goods within and across the regional market. The EU deal enables free, unrestricted movement of raw material, labour, and finished goods and services between member states making business easier and cheaper (Bruno, Campos, Estrin, and Tian 2016). Moreover, design in fashion relies on the connections and amalgamation between the various cultures of which only free movement can facilitate. Restriction in that regard restrain talent/creativity and kills the industry, ultimately. Specialists, predict a slowdown on Britain’s economy should the restrictions on free movement take effect come March 2019 (Kibasi 2016, p. 14). Freelancing is a popular mode of operation in the fashion industry, and it allows companies to bring on board designers and models at the very last minute to promote and design goods and services. Unfortunately, the UK’s withdrawal from the regional block means fashion companies will not have any direct links or suitable access to talent and labour as they require.

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Ideally, the international and regional platforms provide the most favourable trade environment for the fashion industry (Moore 2017, p. 400). As well, rationale, growth and development of a country’s fashion industry depend on the availability of a talent pool only present within the international domain. Fashion and design companies feed on their intellectual property and continuously rely on the outsourcing of talents from various states within the region. Upon leaving the union, the UK will have to revise the laws that protect its intellectual property. Previously, the nation had relied on the provisions stipulated by the EU. The proposals and decision made by the UK in post-Brexit have a significant bearing on the future of the fashion industry(Cuadros 2016, p. 131). The UK government must take a calculated approach at defining the type of trade relationship it will have with the Union in the aftermath of its exit from the regional block.

According to Dhingra, Ottaviano, Sampson, and Reenen (2016), the outcomes of the UK’s exit from the EU could go either way. On the one hand, it could diminish the economic growth significantly following the resultant restrictions. The fashion industry is one of the main victims that is set to go down thanks to instability in the economy (Kibasi, 2016). On the other hand, it could angle the UK in a position that allows continued growth due to the freedoms that the exit awards her (Chen, Los, McCann, Ortega‐Argilés, Thissen, and van Oort 2018, p.28). The exit, gives the nation the capacity to negotiate for trade deals and across border relationships, which safeguards its interest as opposed to the previous conditions. However, after exiting the trade union, the UK ceases to enjoy the same privileges as the existing members, which ultimately, affect the fashion and design industry. Again, Brexit will have a lasting effect on both imports and exports. The tariffs and customs duties charged for importation will obviously increase due to the absence of an arrangement similar to the ones availed by the union, which helps in lifting financial barriers to trade.

The industry is bound to incur significant losses since almost 70% of its clients come from outside the UK. Foreign tourists mostly from Asia and America form the clientele base for luxury goods in the UK. In the past, the UK has attracted a considerable number of high-rolling tourists from China who purchase the bulk of the industry’s luxurious goods (Henninger, Alevizou, Tan, Huang, and Ryding 2017, p. 420). Unfortunately, the numbers have reduced lately following terrorism scares/attacks in European nations such as France and Belgium. Worse still, the new visa regulations have dealt the industry a big blow causing the number of tourists visiting the Schengen zone to reduce drastically. Jansen (2016) predicts that Brexit will only make the already tense situation worse and business may decay even further for the British fashion companies.

According to Lea (2018), the ‘Chequers Agreement’ terms proposed and published under Theresa May the British Prime Minister in July 2018 an indication that Brexit does not look so good on the future of the UK. The EU’s rejection of the terms presented by the British premier highlights the current predicament of the nation and exposes its vulnerability to the ravages of the economic chaos if it leaves without a reasonable understanding between them. Dhingra, Ottaviano, Sampson, and Van Reenen (2016, p. 24) emphasises the importance of the single market offered through the EU as it provides members with access to a market that boasts of more than half a billion people. The UK risks losing rights to the ‘four freedoms’ of trade within the market, which allows to exercise free movement of capital, goods, labour, and services. Particularly, it saves the members significant revenues that they would otherwise spend on costly import tariffs and other managerial costs. Failure to deal an effective deal, the UK would have to utilise the tariff system provided by the WTO as one of its founding members. Reports indicate that the absence of a deal with the EU the UK would have to allocate about £4.5bn annually budget for export tariffs.

Moving on, most British producers obtain raw materials for their productions such as textile, zips, and fabrics come from Italy, Germany and Asia. Free movement of goods and personnel across the European block remains UK’s most significant challenge that surrounds the Brexit stalemate. One of the most argumentative issues in the UK that reinforced the Leave campaign was the problem of immigration. Under the directions and regulations of the EU, the population of immigrants from the EU has increased making it difficult for the government to control the population that enters the country. This opinion clashes with the needs of the fashion industry, which relies on the importation, and exportation of labour and goods.

The UK largely lacks skilled labour within the fashion and design domain despite having some of the best institutions that provide courses on design and fashion (Henninger et al. 2016, p. 227) it faults the government for using the issue of immigration as a tool for its pro-Brexit campaigns.

One of the most effective solutions to the UK post-Brexit dilemma is to negotiate a free trade area agreement that will see the nation gain access to the European market (Dhingra, Ottaviano, Sampson, and Reenen 2016). In trade, a free trade area is one, which incorporates a regional block whose constituent member states have an agreement designed to facilitate easy business operations (Wadsworth, Dhingra, Ottaviano, and Van Reenen 2016, p. 35). Often, these agreements unite two or more nations in a bid to overcome barriers to trade such as administration costs and import and export tariffs. Some regions make the agreement even more binding by incorporating free movement of people and goods across borders. Pisani-Ferry, Röttgen, Sapir, Tucker, and Wolff (2016, p. 2) agree that the UK will need to negotiate a deal that allows it a free trade area upon its exit from the European trade block. Fortunately, the EU agreed to offer the UK the choice of a free-trade area deal in post-Brexit after its premier’s attempt at brokering single market agreement proved useless (Simionescu 2017). Through the intervention of Premier Theresa May, the UK attempted to have the EU grant access to a section of the single market as well as affiliation to some of its special agencies.

If the British government does not negotiate a free trade area agreement, the fashion industry will lose easy access to a large chunk of its market base in the EU. The existence of a free trade area reduces the fees and taxes paid to facilitate movement of fashion goods and labour in and out of the UK (Breinlich et al. 2018, p. 5). Goods in the fashion industry are classified under the luxurious category and often fetch high prices. High prices due to the absence of a free trade area agreement result in increased costs of production in the UK fashion industry. Moreover, the tense business atmosphere within the UK may discourage designers and models from operating in the British industry. Similarly, fashion companies such as Burberry of the UK will incur heavy costs when conducting business outside of the UK due to the reduced value of the pound.

The study will employ various types of research methodologies in its search for the impacts of Brexit on the pricing strategy and buyer behaviour in the fashion industry in the UK. A research design refers to the framework, which helps in the search for relevant information. The research methodology framework is best illustrated by the Saunders research onion, which provides a systematic approach to a research methodology. (Figure 1 below)

As illustrated in the diagram above interpretivism, pragmatism, realism, and positivism are the primary philosophies in scholarly research. The study will use the interpretivism philosophy to interpret elements of the research problem with the aim of providing logical explanations. Ideally, the interpretivism philosophy incorporates social interests into an investigation. It facilitate the exploration of the various dimension of social life and the influence they have on human behaviours. In this case, the philosophy will help discuss and provide credible “facts” about buyer behaviour in the UK fashion industry concerning Brexit.

Primarily, the study will employ the secondary research approach mainly because the fashion industry is a fast-paced industry and most of the information and statistics is available online on sites such as Business of Fashion, the British Fashion Council, Financial Times and Reuters. The use of secondary sources to explore a research problem is in line with the interpretivism philosophy. The combination of interpretivism philosophy and the research design restricts a study to the use of the qualitative research method. The use of secondary research approach is a common feature of qualitative research.  The procedure demands the in-depth review of sources from online databases as well as physical libraries. Qualitative studies facilitate the use of findings from others to provide conclusive remarks concerning a research problem.

The UK fashion industry risks going down unfavourable operation conditions in the European market following the nations pending exit from the European Union. Failure to have a strong agreement deal might mark the downfall of the fashion industry. Undoubtedly, it is one of the most profitable industry in the land, and consequently the British government should make an effort to see that it stays afloat regardless of the outcome of the ongoing negotiations. While the EU maintains its stance regarding the UK’s exit, it should evaluate the risks involved in either leave or remain. The trade will influence in the fashion industry in many ways including the increase in tariff rates, restriction of movement, a decrease in the value of the pound, and the diminishing of the customers base.

This study concludes that the negotiation for a free trade area will help rescue and lift the fashion industry’s declining operation and profit margins since the Brexit referendum. Free movement of goods and people is a fundamental requirement in any industry and is not limited to the fashion industry only. Besides regulating tariff rates and administrative costs, the existence of a free trade area facilitates the growth and development of new talent, which sustains the industry.

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