The Prime Minister has, as promised, got Brexit done, there is a free trade agreement and we have finally left the European Union. The KBSA corporate chair Malcolm Scott considers what this historic development may mean for the kitchen industry.
The dreaded Brexit is finally upon us and a trade deal done. Twenty years ago, the millennium bug was going to stop the world – but we all managed to continue trading. Brexit might cause a few hiccups, but it will not stop the world. My guess is that, as with the millennium bug, most people will not even notice.
The kitchen industry supply chain has been working on plans to minimise the impact of Brexit for several years. British manufacturers like Symphony have increased their UK component supply base and built up large stocks to minimise disruption.
Appliance giants like BSH and the Whirlpool group have built huge new buffer stock warehouses to minimise the impact of channel port delays. And once the supply chain completes its adjustment to Covid-related dis–ruptions, warehouses will fill up. Over the past 24 months, investments in many parts of the kitchen industry supply chain have been huge.
Import / export
While there are undoubtedly retailers who are directly importing and exporting kitchen products, most European-manufactured kitchen products are sourced by retailers via a UK subsidiary of the original manu-facturer. In most cases, retailers and distributors are trading with a UK company and are not the importer.
The exception to this is with ‘private label’ OEM products, but these are usually sourced by bigger organisations that have significant resources.
The UK divisions of the big manufacturers are effectively transport and export businesses, owned by large international trading groups, with sizeable resources and considerable know-how from trading in many diverse markets.
Where retailers are buying directly from Europe, these suppliers are mostly quite big organisations, which will have the resources to guide and assist their customers. Those few retailers who export some of their kitchens may find that part of their business rather more complex, but this is a small and very specialised part of the market.
For some parts of the UK economy, Brexit may be a much bigger issue, such as tourism and the service sector, which could potentially reduce overall demand for kitchens if prosperity diminishes – but this is by no means certain.
New opportunities may emerge and, as one door closes, another may open. Wrapped in with Brexit is the issue of currency fluctuations, which are often a matter of investor confidence, but can really impact day-to-day life. At year-end, around 84p bought you €1, compared with 56p back in 2000. To get some sense of historic comparison, at its worst, 90p bought you €1.
These fluctuations have a very real impact on the price stability of imports and exports – a weak exchange rate for sterling makes kitchen channel ‘bread-and-butter’ lines, like an oven, cost more to a UK consumer, but it also makes the cost of a Toyota car assembled in Derby for export to Germany cost less to a German consumer.
To get this into a more channel-specific context when looking at the kitchen market, the Turkish lira is quite weak against sterling, which has improved the competitive position of Beko in the UK compared with Indesit, which mostly comes from the euro zone. Short-term, sterling is holding up reasonably well, but if this changes, we could see big price increases for kitchen channel products.
To understand the dynamics of currency, the weakness in the Chinese yuan over the past 12 months against the dollar has offset much of the impact of Trump’s extra duties on Chinese products sold to the USA, while a weaker pound against the euro might damage the competitiveness of British exports to Europe.
So will Brexit have a huge impact on our sector? It does seem intuitively clear that this will depend more on the overall impact on consumer spending than on any industry-specific issues.
If consumers keep spending, the impact will be minimal, However, if we see increased unemployment and more inflation within the UK economy, the kitchen sector will feel pain, like every other.
Initial analysis points to a slowdown in growth rather than any significant decline in economic activity, so
my bet is on 2021 being a tough year for the industry, but not without opportunity.