The Retailer Winter 2018/19

Bracing for Brexit

MARK ESSEX Brexit Director KPMG

KPMG’S GO TO BREXIT EXPERT HAS BEEN HELPING BUSINESSES PREPARE FOR THE UK’S EU EXIT SINCE 2014. MARKWORKS WITH KPMG’S 30 STRONG ARMY OF SECTOR BREXPERTS TO HELP CLIENTS MITIGATE THE IMPACT OF BREXIT AND PLAN FOR GROWTH. Some of the big challenges Mark helps clients overcome include: adjusting to new regulation, supply chain weakness, recruiting and retaining staff and depressed consumer confidence. He writes a regular column on Brexit and is an experienced media panellist and presenter. SYNOPSIS: 5 smart responses to Brexit tightening the labour market Brexit day may not be until March but retailers are facing challenges already. None bigger than staffing. EU nationals are voting with their feet and may not return after a Christmas spent abroad. That causes a problem for businesses with high numbers of EU nationals but also those who don’t. Mark Essex, Brexit Director at KPMG explains why a retailer’s exposure may be worse than they think. And not just for sales assistants. Cleaners, warehouse workers, delivery drivers are also susceptible to a better offer from a competitor. And that competitor for workers need not be a fellow retailer, but someone from an industry facing less cost pressure. What can retailers do? Mark argues that while much of Brexit represents an often confusing and usually uncontrollable rough ride for weeks and months to come, we are not passengers on a rollercoaster. There are strategies we can employ to improve our prospects. He shares five smart responses for employers to consider to make themmore resilient to this challenge, going beyond lobbying a busy Government to maintain the status quo. Five smart responses to Brexit tightening the labour market Britain has not yet left the EU but Brexit has already had a significant impact on retailers. And among all its effects – from food price rises to supply chain disruption – none has been felt as keenly as staffing. I’m sure we can all quote at least one example of how difficult recruiting has become, particularly outside London. One restaurant operator opening a new outlet in the Home Counties told me that he was having to bus workers in from out of town and provide free accommodation. I know of retail businesses who are investing in case management to help the hard to employ become job-ready to help fill vacancies. This is not purely the Brexit effect of course. The UK has had a tight labour market for years and structural issues around encouraging

young British people into the sector of course play a large part However, our research shows that Brexit is discouraging some Europeans to stay in the UK, and more significantly, discouraging other EU nationals to come. The currency depreciation alone means a pound does not go as far as it used to in Paris, Budapest or Warsaw. And I’m afraid I don’t see a change in the political picture that is going to reverse this soon. Already we have seen the steepest annual decline in the number of EU nationals working in the UK – down 86,000 in the year to June to 2.28 million – and in the vacuum of certainty we are likely to see more Europeans either vote with their feet or continued to be ‘scared off’. Already UK unemployment is at its lowest level since the 1970s and below the point considered ‘sustainable’ by the Bank of England. The effect on worker availability in sectors such as retail, hospitality or food production is obvious and the potential knock on for wages is clear. Though wage inflation has been largely held in check across the broader economy thus far, it’s not clear how long employers can resist this upward pressure. “But I don’t employ a high proportion of EU nationals?” is what some firms tell me. That’s small comfort if you operate in a labour market in which there are a significant proportion of EU workers: you may still be exposed. If the business down the road is affected and increases pay to retain workers, your staff may be tempted away by those higher wages. That includes cleaners, warehouse workers or delivery drivers. And for those roles you are not just competing with similar businesses – your competitors may be in completely different industries. Faced with this picture, here are my ‘5Ps’ to reduce exposure to a labour shortage: 1. Productivity Obviously, requiring less labour per pound of revenue reduces your exposure to an increase in the price. This may sound like economics 101 but let me reassure: I’m not talking about robots pouring pints or greeting customers. But we know from a rollout by one company that ordering via apps for example can lead to 27%more covers for the same number of staff. There is evidence that laying out choices via an app increases upselling too. 2. Participation Just as when the oil price goes up, companies explore tougher locations to drill, so too must employers work harder to find talent. How could you change working patterns to tap into otherwise overlooked sources of potential? Ex-offenders, parents of school-aged children, or the recently retired may be great sources of loyal and flexible labour if you can make the work-pattern … work.

38 | winter 2019 | the retailer