Industry Comment Brexit squeezeswholesaler margins


It’s been one year since the nation decided in favour of leaving the European Union, so what has really changed for wholesalers? Perhaps more than you think. Malcolm Duncan (pictured), Managing Director at Super Rod,


looks at how the EU referendum paved the way for price rises across the board and how the weaker pound is presenting new challenges to both wholesalers and manufacturers.


R


ewind to June 2015 and few would have predicted a win for the leave campaign or the political turmoil


which followed. One year on and there is still much uncertainty about what Brexit will look like in real terms, particularly as we stand on the edge of a general election. For the electrical industry, Brexit seems to be


bringing more challenges than it was ever promising to solve, and it may be some time before the benefits of being outside of the EU are felt by the majority. The key change so far has been the currency


movement. Many of us don’t check the exchange rates unless we are going on holiday and need to know how far our spending money will go, but it’s actually become business-critical since the Brexit vote. Before the referendum, the pound faired pretty well against the Euro (€1.3 - £1) and the US dollar ($1.46 - £1) but since then, the rates have fallen significantly. This has had a big knock on effect on manufacturers and wholesalers alike. As UK manufacturing has diminished over


the years, and wholesalers now buy much more of their products from Europe or overseas, the weakening of the pound means that the cost of purchasing and importing these goods has now effectively increased by up to 12 per cent. Some manufacturers have raised their prices once, if not twice, since Brexit, resulting in a double digit increase for wholesalers.


This means wholesalers are now faced with tough decisions to make about whether to


There is some


good news afoot as UK manufacturers


are actually benefiting from the weaker pound so their prices remain relatively stable.


www.ewnews.co.uk Some manufacturers have raised their


prices once, if not twice, since Brexit, resulting a double digit increase for wholesalers.


is some good news afoot as UK manufacturers are actually benefiting from the weaker pound so their prices remain relatively stable. Some are enjoying a boost in their export sales, as they are now more competitively priced to overseas buyers. For wholesalers on these shores, this is at least some reassurance that their British favourites aren’t about to vanish anytime soon.


pass these increases on to customers, reduce their margins to stay competitive or to source new product lines to maintain their margins.


Impulse purchases With wage growth actually stagnating and inflation at its highest rate for three years, most customers don’t have extra money to spend on anything other than the essentials so impulse purchases will inevitably wane and any big price increases could send once loyal clients off to seek more competitive deals elsewhere or online. Independent wholesalers, who outside buying groups don’t have the same purchasing power as bigger national chains, could find trading conditions ahead very tough indeed against this economic landscape. To avoid passing on price rises to customers without reducing profit margins, one option for wholesalers would be to source more competitively priced products, giving shelf space to a larger number of price-fighter or own brand items. When looking for lower cost alternative products overseas, it’s always worth noting that with a reduction in cost, there may also come a reduction in quality. And when it comes to working with electricity, quality can certainly be a life or death issue! So while wholesalers engage in price wars with their European and global suppliers, there


Advantage I for one think the unexpected currency hurdle could work to a wholesaler’s advantage if approached in the right way. Brexit’s impact on the global money market is presenting wholesalers with an opportunity to challenge the status quo, to really delve into what their customers value most (whether that’s brands, price, quality or something else) and re-evaluate their business model to ensure it is able to adapt and weather the storm. Moving forward, it is difficult to predict what


post-Brexit Britain will look like. In the months and years ahead after we officially exit in March 2019, we will of course see further changes – some for the better, others perhaps not. Its fair to say the initial promise of closer relations with Trump’s US market is already looking fragile as the administration appears to be reversing its position on trading with the EU block as a whole. Negotiations with the EU are still looking tentative too.


But doom and gloom aside, in the end the thing about the currency markets is that they can go up as fast as they go down, so should the UK secure some favourable trade deals, the Sterling will rally and put us all back in the driving seat. So whether it’s a hard Brexit or a soft Brexit, the resilience and innovation we see in the UK electrical industry as a whole will ensure we don’t just survive, we prosper.


www.super-rod.co.uk June 2017 electrical wholesaler | 43


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