We are all grappling to assimilate the new reality. So too are the financial markets and retailers. The context is an industry already wilting under the weight of overcapacity. This structural challenge will not go away. However, Brexit will provide a huge diversion and make it easier for leadership teams to make the wrong diagnosese of what’s going wrong and the actions needed.
So what will happen? Uncertainty. No one knows what the implications will be and this will encourage caution. Some spending will be delayed and that in itself will put a brake on an already brittle consumer economy. People will feel markedly less well off. An already thin housing market will see some of that postponed spending I mentioned. This will be self fulfilling – it will deliver the lower prices it potentially promises. So people will feel less wealthy and less optimistic about their future economic wellbeing.
One shaft of positive light in all this comes from looking at spending patterns post Lehman Bros collapse. Back then retail tended to be the most defensive element of consumer spending. I expect the industry to defend its current share of spending well this time too. However, let’s be clear – this will be a robust share of a falling spend. I expect retail sales to fall in the second half of 2016 – even the immediate post-debt crisis period posted a sliver of growth in retail spend. Against rising costs of 3/4% yoy, this sounds worrying, and it is.
As I said, the structural fractures in retail will be made worse by Brexit and the necessary shake out will be accelerated. The need to deal with overcapacity will be materially magnified. Leadership teams need to grasp some very difficult nettles but need the right diagnosese to do so. Blaming everything on Brexit will lead to the wrong conclusions.