Retailers are emerging as one of the biggest casualties of Brexit.
At least 5,300 UK retail jobs are at risk after Toys “R” Us and electronics chain Maplin collapsed on Wednesday. They folded because of online competition and Brexit-fueled economic pain.
In total, Britain has lost 65,000 retail jobs since it voted to leave the European Union, according to the most recent data from the Office for National Statistics.
Here’s what’s bringing retailers to their knees:
1. Brexit vote fallout
PwC, which is in charge of winding down Maplin, said the chain had been hit hard by weaker consumer spending and more expensive imports.
Higher import costs can be traced to the EU referendum in June, 2016.
The British pound dropped dramatically following the vote, making it more expensive for retailers to purchase goods from abroad. That has translated into high prices for consumers.
Inflation, which began last year at 1.8%, now stands at 3% — well above average wage growth.
Shoppers are feeling the squeeze. The latest data from Visa show that consumer spending fell in January over the previous year. It was the eighth drop in the past nine months.
“Retail sales growth was broadly flat at the beginning of the New Year with the longer-term picture showing a continued slowdown in the sector,” said Rhian Murphy, senior statistician at the ONS, earlier this month.
2. Online competition
Traditional retailers are also facing increasingly tough competition from online stores such as Amazon.
Toys and electronics, which make up the bulk of the products sold by the retailers that collapsed Wednesday, are among the items most popular with online shoppers.
The share of UK sales that are made online has doubled over the past five years to 20%, according to the ONS.
Experts say more stores will close in 2018 as traditional retailers struggle to keep pace with online rivals.
“The store still has a key role to play, but there will be fewer of them,” Deloitte analysts wrote in a research note.
3. Uncertain future
The UK will leave the EU in March 2019. The British government has proposed a two-year transition period to help companies adjust to life outside the bloc.
But it has not finalized the details of the transition with the EU — or said what kind of relationship it wants in future with its biggest export market.
Retailers, many of which sell imported goods, need to know the details so that they can plan how to source products at prices affordable to their customers.
“It’s imperative we get clarity and a definitive agreement over the next month’s Brexit negotiations around the exact form of the transition arrangements,” said Helen Dickinson, CEO of the British Retail Consortium.
And there’s still a chance the talks between the EU and UK could collapse, leading to a dramatic severing of ties that would be even more economically damaging.
Retailers are also worried about the 6% of their staff who come from EU countries. Employers are worried that Brexit will encourage many to leave and potential job applicants to stay away.
Given very low unemployment, finding replacements could be tricky. The British Retail Consortium warned last year that prices in stores will go up if EU workers can’t be hired easily.
