Brexit looks set to send prices on an upward spiral, which means retailers may have to up-skill staff to convince customers products are worth paying the extra for, says Gekko managing director Daniel Todaro
The ERT Turning point Summit held in February touched on the many opportunities that face independent retail.
Like it or not, I refer to these as opportunities, as challenges paints a negative picture rather than an optimistic future in the most dynamic of industries – technology.
One area that we must remain optimistic about, as it’s a certainty, is Brexit and the impact this is having on trading even before Brexit has happened. By the time you read this, the Government will have triggered Article 50, starting the process of extricating the UK from the EU.
When the vote happened, there was much debate regarding the immediate impact in trading. In August, I wrote: “Any price increases will certainly not be absorbed by resellers, and will instead be passed on to the end user”. With the significant fall in sterling against the dollar (10 per cent) and euro (seven per cent), many brands chose to use this as reason to make trading that little bit more difficult for retail, in particular technology.
First to raise the average price of every product by 10 per cent was Dell, later followed by Apple who chose to increase prices by around 25 per cent again across every product, with a MacBook Pro jumping from £999 to £1,249. It wasn’t just hardware, however, as apps all increased from 79p to 99p and £7.99 to £9.99, all on the back of the Brexit vote and currency fluctuations.
Microsoft followed with an 11 per cent increase, and more recently Sonos, with what are now ‘old’ products, increased their pricing by 25 per cent across the entire range which took effect on February 23, taking a Play:1 from £169 to £199 and Play:5 from £429 to £499.
In the MDA category, although not a blanket price increase, many European brands, including Siemens and Indesit, are demanding payment in euros from distributors, pushing up retail prices due to a ‘trickle-down’ effect resulting from the increasingly unpredictable and unfavourable exchange rate.
These brands have something in common: they are category leaders and, to a certain extent, dictate the development of their respective categories through a rigid pricing structure and go-to-market plan. What they perhaps do not appreciate is that consumers aren’t stupid and can choose to opt for other brands with more appealing price points – an opportunity for emerging and established brands and retailers to explore.
The challenge for retail is how to up-skill your work force to continue selling the same products they’ve always sold successfully, but now at a higher price point. Sales teams will have to work harder to close a sale, and perhaps longer, but for no incremental benefit to you. Retailers don’t benefit in the same manner from what some may consider an arbitrary price increase, with only a slight or no increase in margin.
While many who voted ‘out ‘may have never considered that the costs of goods we import would go up, the reality is that it becomes a convenient rationale for many brands to apply an increase, blaming Brexit, and passing the cost on to consumers rather than absorbing this themselves. This is likely to be applied across every category.
Away from tech, others brands, such as Tesla and Lego, have both applied a five per cent increase, stating that this action was taken as “direct result of the continuing devaluing of the UK pound”. We saw what happened when Unilever tried to increase the cost of products such as Marmite by 12.5 per cent – the public made it known that they have a choice and they would choose to abandon a brand for a similar product. You need to have rather good brand equity to successfully manage price increases that impact on your loyal customers’ pockets.
Call it a ‘Brexit levy’ if you like, but let’s be realistic: it’s not going away. With Article 50 triggered, currency fluctuations could prove to be more negative and incur further price hikes. On the other hand, they could become positive, but if so I suspect we won’t see brands roll back price increases, instead retaining their increased pricing model to establish range pricing.
Whatever the outcome, market economics means retailers of all types must remain optimistic and have a clear vision of hope as they navigate the future. This includes pushing back on brands that make it harder to sell. Perhaps by introducing into your categories new or up-and-coming brands that could offer you more margin and your customers a better product at a reasonable price they are happy to pay.