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Brexit at the Cliff Edge: What Fashion Needs to Know

March 29th was meant to be the day the UK left the European Union. Instead, the Brexit drama is far from over and global fashion brands operating in the country face a prolonged period of uncertainty.
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  • BoF Team

Hello BoF Professionals, your exclusive 'This Week in Fashion' briefing is ready, with members-only analysis on the key topic of the week and a digest of the week's top news.

March 29th was meant to be the day the UK left the European Union. Instead, this afternoon the country’s parliament rejected for a third time British prime minister Theresa May's Brexit deal, making a long delay more likely than ever and pushing the country closer to a constitutional crisis.
With the Brexit drama far from over, brands operating in the country face a prolonged period of political chaos and uncertainty with no clear resolution in sight and tough questions about the long-term health of the domestic market. Here’s what fashion needs to know.
The European Union has granted the UK until April 12 to come up with a viable solution to the Brexit quandary. Members of parliament had already rejected Prime Minister Theresa May’s Brexit proposal multiple times, but they also failed to come up with a clear alternative.
A series of votes this week on a range of eight different options secured eight negative results, while a last-ditch attempt to get support for May's deal in a vote on Friday failed. Next week, politicians will take another look at a narrowed-down range of options in an effort to find one that will win a majority backing. Unless parliament can agree on a deal, the country faces a choice between a long delay, crashing out of the bloc without a deal, or revoking Brexit altogether.
The indecision is a major challenge for the UK's fashion industry, which has been left scrambling to understand what the situation means for business. The key issues are potential changes to immigration policies, costly currency fluctuations and the prospect of a sharp increase in import and export costs. Some 63 percent of clothing designers and 55 percent of UK-based luxury goods makers are involved in exports, and around 10,000 EU citizens are employed in the UK fashion industry, according to BoF and McKinsey’s latest State of Fashion report.
But international brands selling into or buying from the UK market are also at risk from sudden changes to trade agreements that could disrupt the flow of goods and add significant costs to their operations. Current trade in finished fashion goods between the EU and the UK is worth $23 billion, or around 5 percent of the total European fashion market, according to the BoF and McKinsey report.
For the fashion industry, the worst-case scenario would be the UK leaving the EU with no deal at all. That would likely mean sharply higher import and export costs, as well as significant delays as tougher border checks come into force.
Burberry Group chief operating and financial officer Julie Brown warned in January that the British luxury brand could face tens of millions of dollars in new duties under a no-deal Brexit. Elsewhere, companies like Kering, LVMH and Harrods have said they are stockpiling goods in case of any Brexit-related disruptions.
“It’s hard to prepare because the English authorities themselves aren’t ready,” Kering chief executive François-Henri Pinault said in February. “We don’t know what will happen.”
Earlier this month, Britain's luxury industry lobby group, Walpole, warned that the sector could lose as much as £6.8 billion if the country crashes out without a deal. Though local luxury retail has thus far proved relatively resilient to Brexit uncertainty, with the weaker pound encouraging wealthy visitors to spend. How that could play out longer term is hard to predict.
For smaller brands, planning for an uncertain future has been particularly challenging. “We haven’t prepared logistically if I’m honest,” said London-based Greek designer Mary Katrantzou. “We’ve looked at warehousing a little bit, but we’re all waiting to see what every other brand is going to do to lead the way.”
Some are considering drastic measures. British designer Olivia Von Halle said her namesake brand could move their warehousing to Asia or the US to “avoid the Brexit chaos,” while German designer Markus Lupfer said: “If Brexit is happening with the no deal scenario, we will move the warehousing to a European side.”
The uncertainty has already affected businesses, who have had to contend with currency fluctuations and question marks over how to manage getting goods in and out of the country when and if Brexit happens. “No one seems to know what’s going on,” said designer Henry Holland, whose brand House of Holland is sold globally. “We’re not a big enough company with enough reserves to bulk buy currency to protect ourselves.” But Holland’s main concern is for his staff and his suppliers, he said. Ten percent of his employees are from Europe and nearly a third of his manufacturing takes place in the EU.
London-born designer Richard Quinn, who was feted by the Queen last year, said he’s already struggling to source certain items for his latest collection. “We had a supplier [for] this diamante chain and they said, ‘You won’t have this production after Brexit, we can’t get this in anymore,”’ Quinn said. “For hundreds of these dresses, I’m now going to have to find an alternative.”
On the other hand, parliament’s inability to agree on a Brexit deal has increased debate around the fashion industry’s preferred option: a second referendum. The vast majority of the fashion world opposed Brexit and many designers have vocally supported moves to hold another vote on the issue. In January, the British Fashion Council announced its support for a so-called “people’s vote” in an uncharacteristically strong statement issued after parliament first rejected the Prime Minister’s deal.
For now, all options remain on the table and the ultimate timing of Brexit — if it happens at all — is an open question.

THE NEWS IN BRIEF

FASHION, BUSINESS AND THE ECONOMY

Woman carrying Anya Hindmarch bag at Milan Fashion Week Spring/Summer 2019 | Source: Shutterstock

Anya Hindmarch sold to Marandi family. The brand is parting ways with its long-time backer Mayhoola, after the companies reached an agreement to sell the luxury accessories label to Iranian-born entrepreneur Javad Marandi and his wife. Qatari Mayhoola first acquired a stake in Anya Hindmarch in 2012, building up ownership to at least 75 percent of the company by mid-last year, but had been seeking an exit after a tumultuous period of restructuring, during which the brand struggled to turn a profit.

PVH to exit high-end collection of Calvin Klein label. Missteps at high-end Calvin Klein's 205W39NYC clothing line have hit sales as customers balked at the label's high prices. PVH has said it will shut the label's flagship store on New York's Madison Avenue as the line failed to strike a chord with customers, and is in talks with partner G-III Apparel Group to license out Calvin Klein's women's jeans unit. PVH still reported better-than-expected quarterly sales boosted by an increased demand for its Tommy Hilfiger brand, sending its shares up about 7 percent. Net income rose to $158.7 million from $108.5 million a year earlier.

J.Crew turns again to debt restructuring lawyers. The group has tapped restructuring lawyers for the second time in as many years to explore options for reworking its debt, as the US clothing chain struggles with falling sales and a dwindling cash pile. A misguided shift to pricier apparel and competition from e-commerce firms like Amazon has led to the persistent business challenges J.Crew faces, despite recent turnaround and financial restructuring efforts.

Neiman Marcus creditors in preliminary agreement to extend debt maturities. A majority of the luxury retailer's lenders and noteholders have preliminarily agreed to extend maturities on the company's debt, giving the department store more time to overhaul its $4.6 billion in borrowings. The company has a $2.8 billion loan due next year. The transactions would extend the loan maturity to 2023, and its unsecured notes to 2024, with the latter happening through a debt exchange.

Lululemon jumps as investors cheer full-year sales forecast. The yoga-wear maker's sales forecast eased investor concerns that growth will slow too much from the fastest pace in years. Shares soared 20 percent Thursday after Wednesday's results showed the Vancouver-based athleisure wear maker moving strongly into menswear, improving online sales and potentially challenging bigger rival Nike on its home turf.

Champs Elysées as Galeries Lafayette opens 'concept' store. As top-tier department stores pitch themselves as day-trip destinations to counter competition from online rivals such as Amazon and Net-a-Porter, Galeries Lafayette opened a new outlet in Paris this week. The four-storey, 6,500-square-metre store will sell smaller brands such as Rouje, Walk of Shame and Mira Mikati, as well as top-end labels like Gucci and Chanel. French consumer confidence levels rose in March to reach a seven-month high indicating that the country's retail is recovering from the damage of the "Yellow Vests" protests.

THE BUSINESS OF BEAUTY

Feals CBD products | Source: Courtesy

New wellness start-up Feals brings the direct-to-consumer treatment to CBD. Co-founded by ex-ad tech colleagues Drew Todd, Alex Iwanchuk and Eric Scheibling, Feals aims to make CBD as approachable as possible by applying a direct-to-consumer sales model to society's new favourite wellness addiction. The start-up seeks to clear up the stigmas and misconceptions surrounding CBD with features such as the first-ever CBD hotline.

Unilever set to buy French cosmetic brand Garancia. The consumer goods giant has made a binding offer to buy French skincare and cosmetics brand Garancia, adding to its portfolio of premium beauty products. The terms of the deal, which is expected to close in the second quarter, were not disclosed.

Shiseido's Clé de Peau Beauté signs retail deal in the UK. Set to launch exclusively at department store Harrods this September, customers will be able to purchase products from its 250-strong product line-up. Ranges include collections across skin, body and sun care, and colour cosmetics for the face, lips and eyes. Today, the brand is available across the Asia-Pacific market, Canada, the US and Russia.

PEOPLE

Andrew Rosen | Photo: Amy Troost

Theory's Andrew Rosen relinquishes chief executive role. The founder is stepping down from his role as CEO of the New York-based brand, but will remain as an advisor, spending approximately half of his time on Theory and the other half on other pursuits. At Theory and Helmut Lang, which Rosen also oversees, he will be replaced by Dinesh Tandon, Theory's global chief operating officer.

Paul Surridge quits as Roberto Cavalli creative director. The designer has announced that he is resigning from his position as creative director of the Italian fashion house, confirming press rumours about his imminent exit. Surridge, who joined the Florentine label in 2017, said in an Instagram post he wished to "focus on other projects that I put aside in order to achieve our common goals with Roberto Cavalli Group."

Glossier hires Elle.com editor as first head of content. The direct-to-consumer beauty unicorn is one of the first brands to prove that content and commerce can work, and is now doubling down on content by poaching a Hearst editor to lead its strategy. Leah Chernikoff, Elle's digital director since 2013, will join Glossier as its first head of content in April.

Lawyer Michael Avenatti charged in $20 million Nike extortion scam. The lawyer who represented adult film star Stormy Daniels in her legal battles against US President Donald Trump is accused of embezzling a client's money to cover his own debts. Avenatti threatened to expose allegations of misconduct from Nike employees unless the apparel company paid him and an unnamed co-conspirator $22.5 million.

MEDIA AND TECHNOLOGY

Condé Nast's results show its future lies outside Europe. The publisher of Vogue, GQ and Vanity Fair among others is facing challenges in the US and Western Europe, but Asia is a bright spot. Condé Nast's business in the UK, France, Italy, Germany and Spain registered a combined turnover of £373 million (about $493 million) in 2017, down 7 percent from the year before. Meanwhile, its Western European part lost £27.4 million (about $36 million) that year, which it attributed to one-time costs related to a restructuring of the business that included layoffs and office moves. Excluding those expenses, it recorded a £3.2 million (about $4.2 million) profit.

The Face is back. The British style bible, which had sizeable cultural influence in 80s and 90s under founder and editor Nick Logan but has been out of publication since 2004, is making a long-awaited return as a digital and quarterly print publication. Led by new managing director Dan Flower and editor Stuart Brumfitt, the revamp will debut online in late April and in print in September. On Monday, it launched on social media.

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