Declines for the UK currency accelerated this morning (June 27) as it fell more than 3% to as low as $1.3220, pushing through Friday’s weakest point of $1.3224, which was a 31-year low.
Benchmark UK interest rates have also fallen below 1% for the first time in history, with the 10-year gilt yield 13 basis points down at 0.95%. Amid all the financial uncertainty, Marketing Week predicts which brands will be hit the hardest following Brexit.
Barclays and RBS
Immediately following Brexit, bank stocks took a particularly heavy hit as multiple lenders’ share prices across Europe nosedived more than 15%.
And today trading in bank shares for Barclays and Royal Bank of Scotland was temporarily suspended on several occasions as the value of European lenders tumbled in response to the vote to leave the EU.
The two banking giants both fell more than 18% by lunchtime as markets increasingly turned on stocks’ perceived to be most at risk from prolonged uncertainty over the UK’s relationship with Europe.
“I’m afraid that this is not such a good day for Europe,” said Deutsche Bank CEO John Cryan, before reiterating that his own brand is well prepared as it is headquarted in Germany.
“At this stage, we cannot fully foresee the consequences, but there’s no doubt that they will be negative on all sides.”
John Cryan, CEO, Deutsche Bank
Chancellor George Osborne has already warned of a second potential recession as a result of Brexit and banking brands such as Barclays and Royal Bank of Scotland, which are both headquartered in the UK, appear particularly vulnerable.
Crucial to their presence in London is the EU principle of “passporting”, which allows both to access the European single market without restrictions. But with JPMorgan previously stating it could axe up to 4,000 UK jobs and HSBC suggesting up to 1,000 posts could move to Paris in the event of a Brexit, expect RBS and Barclays to already be considering a move out of London.
British Airways and Easyjet
As uncertainties around the gloomy economic outlook only intensify, perhaps unsurprisingly, the holiday sector has already taken a hit.
Since the decision to leave the EU on Friday (June 24), sterling, which has already hit lows of €1.20 against the euro, is now 15% less than the €1.42 rate enjoyed by holidaymakers last summer. According to The Guardian, this means a family who last year got through £500 while on holiday will this year need to find around £65 more.
The immediate reaction from UK airlines hasn’t exactly been encouraging and although outspoken Remain-backers Ryanair launched a 24-hour seat sale in wake of the outcome, its rivals seem a bit more depressed.
British Airways owner IAG has issued a profit warning following Brexit fears resulting in its share price fallling 19% to 425.6p. “Following the outcome of the referendum, and given current market volatility, while IAG continues to expect a significant increase in operating profit this year, it no longer expects to generate an absolute operating profit increase similar to 2015,” the company said in a statement.
Easyjet expressed a similar sentiment as it blamed uncertainty in the economy and among its consumers, and lowered revenues by some 5% “at least” compared to the same period last year.
It admits Brexit’s impact on people’s discretionary income will have a negative impact on big purchases such as holidays for the foreseeable future.
“Following the outcome of the EU referendum, we also anticipate that additional economic and consumer uncertainty is likely this summer and as a consequence it is expected that revenue per seat at constant currency in the second half will now be down by at least a mid-single digit percentage compared to the second half of 2015,” said an Easyjet spokesman.
Depending on who you believe, negotiations over the UK’s official exit from the EU will take anywhere between one to three years. BA and Easyjet both anticipate Brits to take fewer holidays during this period of uncertainty.
However, should the UK retain its position as part of the single EU aviation market, it will be easier for travel brands to keep fares low and routes unaffected. Every cloud, huh?
Ted Baker & M&S
Earlier this year, the British Fashion Council polled 500 member designers and, of the 290 who replied, 90% were in favour of remaining, with only 4.3% in favour of leaving.
Speaking before the vote happened to the New York Times, Peter Pilotto, of his namesake womenswear brand, said 70% of his team were international. “If [Brexit] happens, people will have to migrate again. The fashion industry isn’t prepared at all.”
Pilotto’s concerns tap into a wider theme, according to Anusha Couttigane, fashion analyst at Kantar Retail. Negotiations around the EU’s free trade agreement will be the biggest concern, she says, as now the UK is leaving, many British businesses are “likely” to have to pay to import the clothes – a costs that will inevitably be passed along to shoppers.
“With the rise of tailoring, so many retailers now source from say India but manufacture everything in the EU,” says Couttigane.
“You look at someone like Ted Baker and it outsources a majority of its production to Hungary as it is cheaper labour.
“Now the UK is out of the EU, fashion brands suddenly do not have the same Labour benefits as before and that’s a major concern for them.”
Anusha Couttigane, fashion analyst, Kantar Retail
It could also be bad news for the likes of M&S. It is looking to revive its sluggish general merchandise division but Lord Wolfson, chief executive of Next, one of its biggest rivals, has already predicted that clothing prices will rise.
And an increase in price on M&S ranges that are already either failing to resonate or looking to stand out on the premium end, isn’t the best news for M&S.
“They could suffer, sure,” adds Couttigange. “But it’s huge international growth in food will also help the business.”
Having recently acquired Argos, Sainsbury’s is now expected to be among the hardest hit British grocers.
The “inevitable impact on disposable income” will see consumers revert back to 2008 spending habits, according to Mike Watkins, head of retailer and business insight for Nielsen UK. “Consumer confidence will fall and wobble,” he adds.
And in acquiring Argos, a business that relies on major purchase intent and bigger spend than a weekly grocery shop, Sainsbury’s is vulnerable, according to Richard Clarke, a European retail analyst at AB Bernstein.
“Sainsbury’s is vulnerable with Argos as it is the most exposed of the supermarkets to the drop in discretionary income we will see over the next two years,” explains Clarke.
“People still need to eat and as the market is already so deflationary, the rise of inflation won’t have as big as an impact as people might think on grocers. However, if as a grocer you’ve got a large part of your business that is reliant on big purchases like Argos is then that will be tough.”
A great beneficiary of the stabilisation the property market has seen over recent years has been estate agent Foxtons.
However, following Brexit the London-based brand warned its full-year profits and revenues will be lower than expected due to “significant uncertainty” in the housing market. Off the back of the announcement, its shares have fallen by up to 40%.
“The upturn we were expecting during the second half of this year is now unlikely to materialise due to Brexit.”
A Foxtons’ spokesman
JLL’s head of residential research Adam Challis says the London property market will be particularly hard hit.
And he paints a dire picture of the national situation as well: “The result brings an unprecedented new dawn for Britain, with considerable uncertainty over the likely impacts for the next few years.
He adds: “We expect an immediate slowdown in housing market transactions, in the order of 10%-15%, resulting in downward pressure on prices for at least a couple of years. We anticipate current activity levels will return but this is unlikely before late in 2018.
“Price growth will be flat over 2016, reversing gains from the first half of the year, while our central expectations of price falls between 3% and 5% in 2017 and 2018 are based on the best case scenario of a relatively orderly adjustment to our new political realities.”
Foxtons may need to re think its core offer and reengage with a very different type of homemaker should Challis’s fears be confirmed.
Nissan and Honda
Of the automotive industry, the Japanese brands are expected to be the hardest hit. According to credit research agency Teikoku Databank, there are 1,380 Japanese companies with operations in Britain, with the manufacturing industry accounting for about 40%.
And for the likes of Nissan, Toyota and Hitachi, who have their production bases for Europe concentrated in Britain, the issue of future tariffs are now a very real concern.
Neil King, an automotives analyst at Euromonitor, explains: “Nissan and Honda are particularly exposed as their supply chains aren’t particularly international and more reliant on Britain than say BMW is.”
Honda has seen sales struggle in the UK market and Brexit could amplify its worries, according to King.
He adds: “If you also look at Nissan, their production in Swindon is the largest employer in an area that has voted for something it doesn’t want.
“This will have a detrimental impact on the automotives sector as people are talking about weakened foreign direct investment (FDI) and long-term instability. If there is less FDI, what does it mean for the foreign labour market? The Japanese car brands will all be sweating and considering their future.”