This week the pound has hit new lows for the year against both the Dollar and the Euro. Upbeat trade news from the US coupled with rising inflation rates in the UK has seen the pound drop as low as $1.27 against the dollar, whilst weak retail sales figures and the looming threat of a no-deal Brexit caused a drop against the euro to €1.12.
Analysts believe the pound’s underperformance combined with underwhelming economic data will frustrate any attempts to hike interest rates come August, which will in turn create longer term uncertainty and keep the pound down against most major currencies at least until, and most likely for some time beyond, the scheduled Brexit deadline of March 29th, 2019.
For some industries, however, such as the luxury goods market, an underperforming pound can be seen in a more positive light. Audit manager Caroline Brown wrote in WWD Online last year that British fashion house Burberry reported a 40% uplift in UK sales in Q3 2016, the quarter immediately after the Brexit referendum, attributed to the affordability of its high end goods thanks to the sudden drop in the value of the pound.
Brown also notes that VisitBritain reported an increase in tourist numbers in 2017 of 8%, with a corresponding increase in tourist spending of 9%. Clearly, not every tourist visiting Britain in 2017 came to shop for luxury goods, but the figures are indicative of a rising trend. Visitors from the US and China, who tend to take lengthier trips and spend more on luxury items, were reportedly up by 16% and 27% respectively in 2017.
Luxury department stores, such as Harrods and Fortnum & Mason, are thriving, as overseas customers in pursuit of luxury goods flock to the traditional names they know in search of Brexit bargains, not to be disappointed. On the other hand, mid-market stores, House of Fraser for example, or Debenhams, have not benefitted from the tourist’s dollars, instead seeing sales slide as their target demographic – middle class Brits – stay away.
Tourists in search of luxury are attracted to high-class store experiences, such as can be found at the flagship Burberry store, in Regent Street, or in the boutique fashion houses of New Bond Street and Piccadilly. Analysts believe that mid-market department stores will continue to suffer, losing market share to online retailers as well as high-end stores, until mid 2023.
Luxury brand sales may not stay within their current price bubble in the UK for much longer, either. Despite their success in the UK, global luxury brands may soon look to alter their pricing structure, as they try to guard against falling profit margins and prevent purchasers “arbitraging” the low priced goods in the UK, buying them only to sell them on at a profit in a market where domestic prices are inflated by comparison – otherwise known as the “Grey Market”.
Chanel, for example, has a policy of not selling goods at more or less than 10% of the euro-standard price benchmark, helping them guard against price disparity, whilst many high-end brands, including Faberge and watch manufacturer Rolex, are already rumoured to have hiked their prices in the UK.
Fans of high-end fashion houses and their products take note; this Brexit-inspired loophole may not stay open for much longer. If you are in the market for luxury goods, now is a good time to head to the UK for a spree – although, sadly, you may have already missed the best of the weather!
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