What Kind of Impact Will Brexit Have on the Luxury Market?

by - Thursday, November 15, 2018


Traditionally, UK has been a luxury goods stronghold. So a question that many shoppers and traders are asking right now- is this going to change in the wake of seismic political and economic shift that is Brexit? What is going to happen to our favorite luxury brands? Well, as investors panicked, the economy wavered and British Bound fell sharply against the dollar. Interestingly enough, though, the immediate effects on the luxury market were all but disastrous. The spectrum of changes includes the positive, the negative, and everything in between. 

A double-edged sword 
First off, the currency fluctuations rendered the UK a true spending haven. Brands like Burberry recorded big spikes in sales due to the buoyant influx of tourists. Their share prices also went up in the wake of government triggering infamous Article 50. Sales of prestige beauty brands soared as well. However, the “Brexit effect” also entails mounting pressure on the luxury market. Most of the brands with a predominantly UK presence reported a 10-15% decrease in consolidated sale value. This only aggravates domestic concerns related to the future of commercial partnerships between the UK and EU. And further strengthening of the US dollar would also reflect on prices of luxury goods, according to the worldwide relative pricing structure. 

Fifty shades of gray 
To make it worse, dips in exchange rates could push many of the goods into the “gray zone” and through illicit distribution channels. This would bring less profit for the original manufactures and put their reputation at stake. Furthermore, like Luisa said in this video by PlayOJO, a no-deal Brexit or the one that doesn’t involve free trade might lead to temporary shortages of imported goods. Along the similar lines, dependency on EU butter, milk, and yogurt will make dairy products less affordable, even turning them into luxury goods. Most consumers will be dismayed by such chain of events and rightfully so. What is more, the worldwide luxury market reacts to these developments. Foreign brands are forced to play the price repositioning game. Rolex and Faberge have already increased retail prices by 10%, while Apple introduced a 20% lift. A reputable e-tailer Farfetch even announced an initial public offering (IPO) on the New York Stock Exchange instead of the London one. Others brands are eyeing the US market and 18 of them evenlaunched a trade delegation launched a trade delegation. These moves naturally raise many eyebrows. 

So, what’s the verdict? 
Still, the answer to the million dollar questions of what kind of consequences we will have to bear is unclear. Simply put, the situation is not black or white. Take the example of Aston Martin, which stressed its readiness to list on the London Exchange. Sales of other luxury car manufacturers, such as Bentley, show that wealthy individuals and affluent households remain indifferent to the gloomy clouds at the horizon. In other words, the ultra-luxury segment of the market is still going strong and this is likely to continue post-Brexit. But, it must be noted that nothing is set in stone. In fact, with the UK market disentangling from the single EU economy, more unpredictable changes are bound to follow. We need to prepare for the possibility of tariffs and duties imposing severe limitations on imposed on trade. Finally, immigration restrictions may hurt the industry that heavily relies on talented craftsmen. Taking all of this into account, the room for optimism is limited at best. 

Conclusion 
We're yet to endure the full blow of an unprecedented change mothered by Brexit. Still, we can already see it a mixed bag of effects so far. We deem that short-term positive impact, triggered by trends such as the tourism boom, cannot offset long-term concerns and uncertainty. Recession and currency drops are looming over luxury brands that will find it harder and harder to survive and thrive, at least without seriously revamping their operations and supply chain. As for consumers, they may have to go to greater lengths in order to satisfy their luxury cravings.

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