Brexit, Bregret and a brave new world

brexit-2-union-jack-splat-webNeil Clark, managing director at Franke UK, gives his views on what faces the KBB industry as the country sets off on the path that will lead it out of the EU

We’re nearly six months on from the Brexit vote and has there been a day when it’s not been in the news? I don’t think so.

Following Brexit, someone coined the term ‘Bregret’ to express the change of heart felt by those who had voted out instead of in. And now I think we have to be careful of ‘Broredom’ when everyone becomes disinterested and weighed down by the constant narrative on the subject.

This isn’t to trivialise the Brexit matter in any way, because it has far-reaching, important and long-term consequences for everyone in the UK. But I can’t help but wish sometimes that the mood music within the media would change from its largely pessimistic tone. The media was shown to have had a depressive effect on the population with its reporting during the recession and I think the same could happen again over Brexit, impacting on consumers’ outlooks and economic performance.

I’m on record as a Remain voter, both to stay in the EU and also part of the UK when we had the Scottish referendum. As a private individual, and as a businessman, Brexit was not my choice. But the votes are in and my view is that we must steer as pragmatic a course as we can through the negotiations, while retaining a positive outlook. There’s a saying that ‘you carry your own weather’ and it seems hard at times to spot the chinks of sunshine through the grey skies of the economic and political forecasts.

Post-Brexit, naturally the shock of the vote caused turmoil and uncertainty, but the world hasn’t fallen off a cliff as a result of it. Despite the sterling’s woes, the stock market has been buoyant and even the phlegmatic Mark Carney has come off the fence and adopted a more positive tone. Angela Merkel has been told by the German equivalent of the CBI that she had better do a good deal with the UK because we are so significant as an export market to them.

Neil Clark
Neil Clark

Here in the UK, the situation appears to be stable for now and we haven’t seen any dramatic shifts in market behaviour. The drop in interest rates means that borrowing has never been cheaper and this should continue to feed demand for refurbishment activity. Property transactions have tailed off, but remortgaging is on the increase, and house prices remain stable in most parts of the country.

As long as consumer confidence isn’t undermined by any economic shocks, I think the market should maintain a degree of stability over the next couple of years. Having said that, the economy, and the KBB sector, haven’t yet felt the full inflationary effects of Brexit’s impact on the sterling. This will certainly be visible early in 2017 and we will see whether or not this changes consumer behaviour.

Challenges

As a net importer of products from Switzerland and the EU, the situation is challenging for Franke. We were never going to make a knee-jerk decision, but the past five months have given us time to carefully consider our options based on market conditions, together with a view on whether the sterling might recover some ground in 2017. We’ve notified a price increase that is larger (and earlier) than we would normally, but in no way does it fully compensate for the shift in currency, the remainder of which we are absorbing. This is a balanced and responsible approach, enabling us to continue with the programme of investment in our products, brands and infrastructure for the mutual benefit of our trade customers and ourselves.

I think many of our competitors have been waiting to see what Franke does, but I’m not too concerned. All are importing part, if not all, of their product portfolio and those who manufacture in the UK will be purchasing raw materials linked to the US dollar or the euro. Some may choose to hold their price position, but if they also plan to protect their profitability, this can only come at the expense of reduced investment in service or marketing. I don’t believe this is the best long-term approach for any brand.

Through all of this, we’re keeping close contact with our customers, so we can understand their sentiments and views. I’m happy to say that we’re not hearing anything particularly alarming from our retailers. They’re largely upbeat and, regardless of their views on Brexit, remain focused on the local challenges of converting enquiries into orders and delivering great service to their customers. It’s very much a case of business as usual and navigating their way ahead. Many are of the mind “we got through a deep recession, so I’m sure we can get through Brexit.”

Similarly, our distributors reflect the sentiment of our retailers. The marketplace for kitchen sinks and taps is increasingly competitive and we are having to work with them ever more closely to ensure that we grow our market position.

My Swiss colleagues have been typically neutral on the subject of Brexit, particularly on the long-term prospects for the UK economy. However, the potential for uncertainty in the short-to-medium term is being monitored closely. The Swiss relationship with the EU and other trading partners provides the UK with an interesting reference. However, we shouldn’t lose sight of the fact that Switzerland’s trading position has been negotiated over many decades and is highly complex. I doubt that the UK can achieve something similar in a much shorter timescale.

We now know that the EU ‘Great Repeal Bill’ is tabled for spring 2017 which will scrap the legislation that took the UK into the EU more than 40 years ago and will kick-start the exit process.

It’s a brave new world that lies ahead, in which the UK will look to expand trade globally, while maximising our opportunities with the EU. Hard Brexit or soft Brexit? Who knows? For Franke, we know it may be a challenge, but it’s not a concern and we will continue to keep retailers at the heart of our business and give them our full support.

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