Brexit Blow to Global Apparel Industry Confidence Says New Poll

LONDON, July 28, 2016 /PRNewswire/ --

The Brexit Confidence Survey, which was carried out, by just-style.com, during a two-week period in July, suggests companies based in Europe (excluding the UK) are most negative in their view of the industry's short-term prospects now that the UK has voted to leave the EU.

     (Photo: http://photos.prnewswire.com/prnh/20160727/816913 )

Almost three-quarters of European respondents say their confidence has reduced over the past three months. This compares with 59% of those in the UK, and 55% in the rest of the world. These 'rest of the world' respondents are also the most optimistic about the sector's short-term prospects, with nearly one in ten saying they now have a more positive view of the next 3-12 months.

Looking ahead to the medium to long-term (3-5 years out) for the global apparel industry, there appears to be more cautious optimism. While 60% of respondents in Europe continue to say the Brexit vote has reduced confidence, 8.0% say it has increased. There is also slightly better sentiment among businesses in the UK, with 54% suggesting the vote to leave the EU weighs on confidence, and one in ten saying their confidence has increased.

Again, optimism for the future seems to be highest amongst those in the rest of the world, with four in ten respondents seeing no change and 13% pointing to a rise.

As for fully understanding the implications of the Brexit vote, the survey found four in ten suggest it will take up to two years. However, one-fifth of those in Europe believe the repercussions could become apparent in just six months, while 26% of UK respondents suggest it could take five years.

Some of the key points from the Brexit survey

• It will take at least two years before the implications of the Brexit vote become clear
• Reduced confidence in global apparel industry's short and medium-term prospects
• Non-UK Europe respondents most pessimistic for the future
• Four in ten respondents suggest it will take up to two years before the implications of the Brexit vote are fully understood
• Four in ten respondents suggest it will take up to two years before the implications of the Brexit vote are fully understood
• It is likely to be at least two years before the global apparel industry fully understands the implications of last month's vote by the UK to sever ties with the European Union (EU), according to a new survey carried out by just-style.
• The results also found that more than half of just-style readers who took part are fearful for both the short and medium-term prospects for the global apparel industry, with their confidence 'reduced' or 'significantly reduced' following the Brexit vote.

Cross-industry comparison

The survey also offers an opportunity to compare the confidence of apparel industry professionals with those at just-style's sister sites in the automotive, food and drinks sectors.

When asked to rate confidence in prospects 3-12 months out, on a scale of 1-10, apparel industry respondents averaged a score of 5.0 - significantly behind the three other industries polled (the automotive sector came in highest at 6.4). Apparel non-UK European respondents were most pessimistic, scoring just 4.6 out of 10.

A similar result was seen on medium and long-term prospects (3-5 years out), with apparel again lagging behind the other industries in the confidence stakes, at 5.6 out of 10. Again, the lowest score across all sectors was the rating of 5.0 from apparel non-UK European respondents.

Widespread uncertainty

The results of the just-style Brexit Confidence Survey reflect the widespread uncertainty felt by the global apparel industry in the wake of the unexpected 23 June referendum result. The responses also show that professionals in the UK are more upbeat about prospects than their counterparts in other key European markets.

Although the initial shock of the vote may have receded, its immediate legacy includes a sharp drop in sterling against both the euro and the dollar and Britain's downgraded credit rating of AA negative. On top of this, the outlook for UK growth has dimmed as the government faces the challenges of shaping a post-EU settlement, navigating a complex web of customs and trade barriers, work visas, and business standards.

Indeed, the International Monetary Fund (IMF) last week cut its forecasts for global economic growth this year and next, blaming Brexit - pointing out that "with the event still unfolding, it is still very difficult to quantify potential repercussions."

It also noted that the economies of the UK and Europe are expected to be hit the hardest by fallout from the referendum - sentiment also seen in the just-style survey. However, while the UK's growth has been lowered to 1.7% this year, and 1.3% next year, it is still set to outpace the 1.6% rise forecast for the euro area in 2016 and comes in only marginally behind the 1.4% growth seen for 2017.

But of course, this is just the beginning of protracted and complicated exit negotiations, meaning uncertainty is likely here to stay.

The UK has a maximum of two years to negotiate these terms once it has triggered Article 50 of the EU Treaty - which is not expected to happen until early next year. And beyond this, there will be more potential disruption as the government hammers out the terms of its post-Brexit trade relationship with the EU and other countries around the world.

Perhaps optimistically, the majority of just-style readers who completed the survey believe it will take at least two years before the Brexit implications are fully understood. This compares with sister sites just-food, just-drinks and just-auto where there is a heavier weighting towards five years.

But as is always the case with the global apparel industry, there are no clear-cut winners and losers - which is also mirrored in the survey results.

Fundamentals such as inflation, unemployment and the cost of borrowing are all still low, yet any drop in consumer confidence and spending is likely to have the greatest impact on items like clothing and footwear as shoppers instead spend more on food and leisure activities.

Fears over price rises thanks to higher sourcing costs are another unwelcome concern.

The declining value of sterling has the potential to help some British-based businesses as it means exports are cheaper for European consumers - which may, in turn, help offset the impact of any EU tariffs that might be introduced after the official exit. But of course, this is to some extent negated by the fact that most products contain components sourced from outside the UK.

However, for the many British brands and retailers who currently outsource production to countries such as Italy, Turkey, India and China, the devaluation of the pound ultimately means they will spend more on orders paid for in euros or dollars. In turn, these extra costs will likely be passed on to the consumer, leading to price inflation.

Yet if it becomes more cost-effective to source locally due to a weaker pound or new duties or tariffs on imports, then an investment in local manufacturing could be another outcome.

That said, it is still early days, and it is likely to take a while longer before the full implications of the Brexit vote take hold. For the apparel industry, currently finalising orders for late autumn and early spring, there is the likelihood that confidence could get worse amid rising costs linked to the drop in sterling. The sector will also be keenly watching post-EU negotiations on customs and trade barriers and business standards, all of which are of critical importance to its ability to source products from around the world.

About just-style.com

Since 1999, just-style has provided independent, authoritative and forward-thinking textile industry information. Today, our editorial remains as strong as ever. We identify and evaluate the clothing industry's major milestones and trends, and are recognised by the apparel sector as the essential business tool for clothing professionals worldwide.

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SOURCE just-style.com