Brexit and its connotations for the fashion industry

by Apparel Resources

13-September-2019  |  16 mins read

BrexitThe UK has been an integral ancillary of the European Union and the apparel industry is a huge beneficiary of its support. The industry is dominated by firms financed through EU funding, along with initiatives that protect human rights of garment workers, promote safe working environments in manufacturing units and support research in various segments of the industry.

Brexit, a term that resonates looming uncertainty for every citizen in the UK, has its own consequences that are going to be even larger for the fashion world. Britain’s fashion industry didn’t vote for Brexit, as many as 90 per cent of designers told the British Fashion Council.

In June 2016, UK voted to withdraw from the EU with 51.9 per cent votes in favour of Brexit under Article 50 of the Treaty on European Union. With only a few months to go, brands and manufacturers find themselves in doldrums without any foreseeable strategies to plan as it is not yet clear whether the UK will leave the European Union with or without a deal.

“UK leaving the EU is likely to have implications in the retail industry, however the long-term effects of Brexit are hard to predict with the on-going problems retail is already facing. The exchange rate has been less favorable, affecting the cost of the goods purchased. Retailers have a constant pressure of meeting their margins, which is also effecting the reduction in supply chain,” as told by Priyanka Seth Modi, Sales Account Manager, Volar Fashion Ltd.

However uncertain, the impact will be faced by both apparel manufacturing and the luxury fashion sectors. 78 per cent of the luxury goods made in UK are exported, grossing approximately £ 35.5 million. While the fashion industry as a whole contributed £ 32.3 billion to UK GDP in 2017, with 8,90,000 jobs across the industry.

Brexit
Oxford street, London

These industries are bound to suffer as companies in the UK have been facing a curb in foreign investment and fewer orders are coming through due to rising uncertainty around prices and tariffs. Many manufacturers have had to shutter factories or rein in expansion as they brace for what comes next, as told by Adam Mansell, CEO of the UK Fashion and Textile Association (UKFT) to Vogue.

Impact on UK Fashion Industry

Barring trade with tariff hike

While companies are fraught with difficult decisions to make, they have to consider the consequences of a ‘no deal Brexit’. Without a deal, UK will lose seamless tariff-free access to the world’s largest economy and be subjected to WTO trade rules. Around 74 per cent of all apparel and textiles from the UK are exported to the EU. Under current tariff rates with third-party countries, the UK can expect an imposition of 11.5 per cent on imported clothes and 6.5 per cent on textiles by the EU. The British Government might also impose a yet-unknown tariff on importing goods, which could put companies with complex supply chains in the conundrum of double taxation.

Not only does the UK depend on the EU for one of its largest market bases, but also sources from it 75 per cent of the components like yarn, cotton and silk, which are imperative for the impeccable functioning of the fashion industry. Another £ 10 billion is spent in importing apparel and fashion accessories from the EU while the whole economy of the industry banks on each product crossing the border multiple times. For example, a shirt could be designed in London by a skilled pattern designer from the EU, manufactured in Portugal using Italian fabrics, wholesaled to international buyers in Paris and finally be sold back to shops in the UK for global buyers and consumers. Therefore, apart from hiked prices, Brexit will jeopardise collaborations with international suppliers, limiting opportunities to obtain the best raw materials.

The concept of a borderless economy to evade

The other worrisome aspect are the queues at the borders and delays in shipments caused by additional customs duties. This will have larger companies implementing backup plans like stockpiling, which is not feasible for the small and medium enterprises that plan only for a season in advance subsequently leading to a lack of warehouse space.

With freedom of movement curbed, travelling between Britain and Europe will become more complicated and expensive. The industry so far has seen corroboration across various countries for a brand to function effectively. Although the UK will push for its citizens to be able to work and travel freely in the EU, British travellers will have to pay higher airfare, as a large chunk of the costs in aviation, are priced in US dollars. With the declining value of their currency, British airlines’ fares are likely to rise.

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Soho shopping street, London

Though the whopping numbers in exports have got people worried, it may not impact the UK as much because the exports to the EU have been on the decline for the past 20 years, with the recent years recording the lowest exports ever.

With the UK withdrawing from European Customs Union, Common External Tariff and Common Commercial Policy, it can negotiate renewed and independent trade agreements with China, India, Vietnam, Bangladesh and US. This could profit both parties of the free trade agreements as new sources of business would be available and restrictive tariffs and policies would be gone. A research by Journal of Textile Engineering & Fashion Technology suggests that the advent of these new economic policies will cause exponential growth in the apparel manufacturing and luxury fashion sectors and support local apparel manufacturing as well as increase consumer trend towards locally-sourced goods.

Surplus workforce no more

Brexit will drain the fashion industry of its talent. The impending deal or no deal has left workers unsettled, making them opt for safer job opportunities. The first quarter of 2018 reported a drop of 95 per cent year-on-year in the number of EU workers choosing to work in the UK, according to The Chartered Institute of Personnel and Development (CIPD).

Many British fashion designers and companies based in the UK employ designers from Europe, or have ateliers abroad where they employ talents, a business structure that is bound to crumble any time now.

“All these amazing seamstresses from Italy, from all over Europe, have been working with us for five years. How much would it cost for us to get them visas?” questioned Christopher Kane, a Scottish designer based in London, in an interview with The New York Times.

Brexit will leave companies in the UK with a substantially lower workforce and talent as well as higher staffing costs, resulting in an adverse impact on their profitability. An estimate suggests that up to 70 per cent of the 12,000 to 13,000 manufacturing workers in the London region are from Eastern Europe. Although, many brands will face the brunt of losing workforce, it might be positive news for UK nationals. The reduction of EU workers joining the fashion industry will bolster chances for Britishers to gain employment.

Fashion education sector to suffer

While discussing the paucity of talent in the UK post Brexit, one cannot forgo talking about the major blow to the education of fashion. A vast chunk of the populace that make up the student body of top fashion colleges like University of the Arts of London, University of Westminster and the Royal College of Arts come from the EU, amounting to 15 percent, 11 per cent and 24 per cent, respectively. Colleges falling outside London see an average of 7 per cent of the students enrolled in art and design courses coming from EU.

There are several deterrents that will force decline of the enrollment of EU nationals. Firstly, the British Government will only grant a six-month visa to students who have graduated from UK to hunt for a job. Secondly, EU students currently enjoy paying the same tuition fee for prestigious fashion schools as UK nationals, but will be forced to shell out the same tuition fee that other international students pay to study in these colleges, potentially driving them away from availing education in the UK.

Bond Street, London

Not only the students, but also the educational institutions will suffer in many ways. European Regional Development Fund (ERDF) has granted millions of pounds to London fashion schools to fund research and innovation initiatives in the industry. This funding has helped students from the EU and UK alike in helping them realise global opportunities as well as sponsored the likes of British Fashion Council (BFC), the organiser behind London Fashion Week. Another initiative that the UK will have to do without is Erasmus, which is an EU initiative supporting travel and study of various students to help them gain international experience.

Probable Implications on India

Brexit seems to have more negative implications for the world of fashion rather than any positive one. It will most certainly have consequences for Indian apparel industry as well. India will have to adjust to the changing world order which has both pros as well as cons.

Brexit is seen as a move that will weaken the British currency; this might be good news for India as it imports more than it exports. Exporters might suffer due to the fall in value of pound while this will prove beneficial for importers. On the other hand, there may be foreign fund outflow and the rupee might depreciate because of the double effect of foreign fund outflow and appreciation of the dollar against the rupee. The fall of the pound could also render several existing contracts to result in loss-making.

With one of the largest economies going under, investors will look for safe havens in these volatile times and India has continuously proven its mettle in terms of stability and growth. Attracting more foreign investment will be a large boost for the apparel industry. Upon its exit from the EU, UK will be free to pen down a bilateral trade pact with India, further strengthening its trade ties. The rising cost of staffing in the industry can also be met with by finding a talented and cheaper labour pool from India which has a large English-speaking population.

The dwindling value of the UK pound and declining number of EU students, might provide a rising opportunity to Indian students as education might become more affordable. This will help create a stronger workforce for the fashion industry in India with more students opting for international education from prestigious institutes, ultimately, helping them apply this knowledge in Indian ventures.

The Road Ahead

With little time left, the British Fashion Council (BFC), along with various designers, has announced its full support for the People’s Vote, a campaign demanding a public vote on the final draft of the withdrawal agreement. The BFC and Fashion Roundtable will continue consulting with the Government and designer businesses to understand and lay out the implications of a no-deal Brexit, ‘a scenario that should be avoided at all costs’, as per the Council. The UK Fashion and Textile Association (UKFT) has also released updated guidance for businesses in preparation for a no-deal scenario.

Some of the guidelines according to the official UKFT website include information on import tariffs and export tariffs. Around 80 fashion tariff lines would be levied with import duties between 8-12 per cent and the Government will closely monitor the effects on the UK economy for a period of 12 months. In case of a ‘no deal’, exports to the EU will attract tariffs between 6-12 per cent.

Katharine Hamnett, a British designer, has sold thousands of ‘Cancel Brexit’ and ‘Fashion Hates Brexit’ T-shirts. She is campaigning for a second referendum, but has a contingency plan in place. She has a set up near Venice for the scenario of a ‘no deal’, to handle production and logistics.

However, there have been some positive impacts in apparel manufacturing with more brands seeking to invest in indigenous companies. With this trend, UK could potentially find an alternative for outsourcing to foreign countries, hence raising employment in Britain. It is clear that Brexit will have largely negative repurcussions for the UK but there is hope that the British Government will establish policies that will bring in a positive turnaround for the economy and the apparel industry.

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