The Luxury Industry Officially Has a Brexit Problem

“Stunning,” “unprecedented” and “reeling” were likely among the words you heard if you tuned into the news on the morning of June 24, 2016. Of course, we’re talking about Brexit, the monumental vote that saw millions of British voters elect to remove the UK from the European Union. The vote had an immediate economic impact: The pound sunk to its lowest value in three decades as soon as Brexit results rolled in, and everyone from top financial analysts to ordinary consumers were sent into a tizzy as they attempted to make sense of what was coming not just for Britain, but for the world economy as a whole (including the luxury transportation industry in Los Angeles and the rest of the US), as the UK set in motion the process of leaving one of the world’s most important economic and political contingents.

The luxury market is one that will be hit hardest by Brexit. No one is quite sure what, exactly, to expect from the UK’s separation from the European Union, but that economic uncertainty is precisely the problem. Consumers who don’t know what to expect economically tend to curb expenses on goods and travel, and such frugality could spell trouble for the global luxury market, which is already predicted to see very slow growth in 2016. Coupled with recent turmoil in Europe (France, Germany, Brussels and Turkey have all suffered high-profile terrorist activity or governmental disruption), Brexit could have serious consequences for not just Britain’s luxury market, but that Europe and the world at large, as well.

Let’s take a look at what we can reasonably predict so far.

Ripple Effect. The pound’s plunge is predicted to reverberate across global markets. British tourists, who were already balking at the dollar’s growing strength, are now less likely than ever to purchase goods manufactured outside of Britain. This is especially worrisome for luxury flagship stores, particularly in the US, which depend on tourist purchases for the health of their margins.

Price Harmonization. Luxury retailer Tiffany’s is already considering this strategy, in which prices are adjusted—i.e., raised—in certain markets in order to prevent opportunists from purchasing particularly cheap goods in one location and turning a profit by selling them in another. In this scenario, Tiffany’s goods in Britain would become even more expensive, thus making them even more prohibitive for domestic buyers.

Border Trouble. Until now, the UK has enjoyed an image of being an open place for tourists from emerging countries like China, Brazil, Russia and India—especially China, which has one of the fastest-growing luxury markets in the world. Now, with their separation from the EU, UK retailers will be forced to deal with trade barriers, import duties and taxes that will lead to higher costs and more complexities for foreign buyers. The biggest blow by far is to the fashion industry, which mostly finds talent, sources and produce goods in the rest of the EU. Now that the flow of trade will be slowed, designers may suffer the most.

Bittersweet Trade-offs. However, foreign shoppers will have bigger incentive to buy European and British goods since they will be cheaper—but devaluation of the pound will make manufacturing more expensive, and may negate that initial benefit.

We hate to be the bearers of bad news, but the luxury industry will do well to buckle up for an extremely bumpy ride thanks to Brexit. That’s not stopping us from continuing to offer the best limo service in Los Angeles, of course. Keep up with luxury news by following us on Facebook and Twitter.