Wholesale & Retail businesses broaden their horizons to reduce domestic risks

The Santander Trade Barometer 2018 Annual Report shows that the outlook is challenging for businesses in the UK’s Wholesale & Retail sector with confidence dipping in recent months. Some 64% of British wholesalers and retailers currently expect their businesses to grow over the next three years, down from 77% last quarter and lower than the economy-wide average of 68%.

For this sector in particular, weak consumer demand is a key factor underlying this drop in confidence. Ongoing economic uncertainty, much of which is related to the Brexit negotiation process, means the situation is unlikely to reverse soon.

Trade Barometer

Investment commitments remain strong

Nevertheless, businesses in the sector are bullish about their investment plans, our research shows. More than eight in 10 firms (82%) say they plan to hire new staff over the coming 12 months, while almost as many (78%) intend to devote resources to developing new products over the same period.

Encouragingly, more than two-thirds of firms in the sector (69%) say they plan to expand internationally over the coming year – a sharp increase on the 57% recorded last quarter.

Given the potential for disruption in the UK market, it makes sense for wholesalers and retailers to adopt a de-risking strategy by broadening their horizons. New overseas markets offer the opportunity for those who have their own label brands to reach global consumers, whether through new digital platforms or more traditional routes.

Making the right investment today in finding new trading partners is an approach that can reap long-term rewards and help businesses limit the impact of any domestic downturn. The Trade Barometer reveals that beyond the eurozone countries, the areas expected to provide the highest levels of future trade are the Asia-Pacific region (31% of all sector businesses say they see this as their top growth area) and North America (30%).

The importance of contingency planning

However, some international opportunities may be more appropriate for some goods than others. For example, given the growing middle classes with high disposable income in countries such as UAE and China where there is a strong reputation for UK goods, we see great potential for UK exports in lifestyle, health & beauty, giftware and fashion across these markets.

The Trade Barometer indicates that the greatest risks facing wholesalers and retailers at present are currency fluctuations (cited by 50% of companies) and Brexit-related uncertainty (41%). More than six in 10 businesses (61%) have made Brexit contingency plans to date – and almost half of these firms (49%) have invested in solutions to manage potential Brexit outcomes.

One of the areas we’re monitoring closely is around businesses in food and drink – perhaps the most important subsector in the UK Wholesale & Retail sector.

As is the case in many other parts of the economy, the UK operates a just-in-time food system with a fast-moving, highly efficient supply chain. If that is jeopardised, by new border controls post-Brexit for example, businesses including wholesalers and retailers will need to work collaboratively with their logistics partners and discuss contingency solutions so they can continue to meet their contractual obligations with their European trading partners.

Read more about the Santander Trade Barometer.