NEXT Live Project

POST-BREXIT STRATEGY STATEMENT

A Set of Corporate Propositions for Leaving the EU

APRIL 2018

Contents About The Authors & Project Brief

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Executive Summary

5

Chapter 1

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Ethical Manufacturing and Supplying, Analyzing the Brexit situation

Chapter 2

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The Future of NEXT Consumers and Economic Overview

Chpater 3

25

The Workforce, Human Rights Abuses and The Ethical Consumer

Suggestion

33

Furture Research

34

Bibliography

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Appendix

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About the authors Savvas Soudeniotis | N0768989 Master student at Nottingham Trent University in International Fashion Management with an undergraduate in Earth Sciences. Main interests of focus are Sustainability and Corporate Responsibility.

Yu Yun Hsiao | N0753065 Master student at Nottingham Trent University in Fashion Marketing with undergraduate degree in Chinese Literature. Main interests of focus are Digital Marketing and Graphic Design.

Hannah Blackburn | N0772044 Master student at Nottingham Trent University in Fashion Marketing with undergraduate degree in Journalism. Main interests of focus are Eco Fashion and Sustainability.

Project brief This project aims to provide you with advanced knowledge and understanding of the potential effects and projected outcomes of Brexit on ethical trading for the UK fashion sector.

The project requires you to produce a professional business report which will be a blueprint for NEXT PLC to manage the effects of Brexit on their UK and EU garment supply chain. Specifically, your team is asked to examine how Brexit may affect a range of key factors surrounding garment sourcing and manufacturing in the UK and Europe focusing on ethical standards. The team should also examine ethical manufacturing from the NEXT consumer’s perspective to determine the extent to which changes arising from Brexit may affect consumer buying behaviour in the UK. Each member of the team will research a key aspect of the project, e.g. how ethical implications arising from Brexit may affect NEXT’s sourcing strategies, their suppliers, and their consumer’s perception of the brand. Individuals will research specific areas according to their subject specialism and prior experience, and then collectively produce a creative and commercially relevant set of proposals for NEXT. This project will enable you to demonstrate a range of subject knowledge associated with fashion management and marketing. Furthermore you will acquire enhanced team working skills, including team leadership, communication, negotiation and time management skills.

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Executive summary Overview The undertaken project involves an extended analysis of Brexit’s impact on the UK and NEXT plc and includes a suggestions outline for NEXT plc and the future of the company in three areas: manufacturing and suppling, consumer culture and ethical operations.

Aims and objectives This report aims to produce a report which details a strategy for NEXT plc to implement in order to manage the effects of Brexit on the UK & EU fashion manufacturing sector following ethical procedures and to attain a deeper understanding of Ethical Trading and Corporate Social Responsibility.

Focus areas Chapter 1 Surrounds the topic of manufacturing and supplying in the Brexit environment for NEXT plc, with a view on the future trading, taking in mind some possible scenarios and consequences of UK leaving the EU. Through understanding the macro and micro environment dynamics a set of suggestions are proposed throughout the chapter.

Chapter 2 Discusses the overview of a hard or a soft-Brexit scenario effects from an economic perspective, analyzing consumer index and attitude which have crucial influence over brand image and marketing strategies.

Chapter 3 Focuses primarily on NEXT’s European workforce in the UK, including issues surrounding human rights abuses and working conditions whilst taking NEXT’s customers’ opinions on these matters into consideration.

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Ethical Manufacturing and Supplying, Analyzing the Brexit situation

Chapter 1

- Savvas Soudeniotis

Background In order to thrive and prosper, every company these days needs to comply with mounting institutional pressures for sustainability by multiple stakeholders such as customers, suppliers, regulators, non-governmental organizations and others (Bansal and Roth, 2000; Horisch et al., 2014; Baker and Schaltegger, 2015). In addition to that, a suitable and healthy macro environment is required for any company to maintain maximum growth that provides economic, political and social stability in aspects of everyday life. In a time of turmoil and change, especially for the UK due to the Brexit phenomenon, it is of paramount importance that companies, and in our case, NEXT plc, posses lighting reflexes and chameleon adaptability to transition alongside a nation to a different page in history. Over the last century, the world of politics has never seen such a big change and an avalanche-like effect in many sectors of a society. With the transition period being extended to December 2020 until a new update surfaces, NEXT plc has enough time to equip itself with what is needed to make it out unscathed. Most observers believe that the initial two-year period is overly optimistic given the inherent complexity of both the terms of the UK exit and a future trade deal (Deloitte, 2017).

Macro environment analysis The Brexit effect To understand the phenomenon, it is fundamental to break down and dissect the very root of the problem, the society itself and understand the ideas and norms it is consisted of at this moment in history. The extreme volatile nature of the events that happened in 2016, Brexit and Donald Trump’s presidential victory alike, left most forecasters in shock. Although 2017 may have been smoother in the general sense, the world stage has been characterized by unstable political order and a lot of tension among countries like the USA, Russia, Turkey, Syria and North Korea. To this very day, the United Kingdom is one of the top ten net contributing Member States of the European Union.

What makes Brexit such a big threat to all industries is the chaotic nature of it. Dismantling the mathematics theory of chaos to comprehend how the international system will react to this social episode will provide a simplistic view of how sensitive to initial conditions the trade stage is. A butterfly-like effect will trigger an imbalance with hard to foresee consequences in the world of trade. In the face of Brexit, the European Commission and the Union itself have had a challenging and tough time in the last two years since the referendum took place. In order to maintain 7

balance and control a set of meetings and a full on agenda for a lot of the Member States has been issued by the European Commission along with a new strategy for sustainability policies that is still under development (UN 2030 Agenda for Sustainable Development). It is an attempt to stabilize and revisit the values of the European Union so that the current and future status of the Multiannual Financial Framework thrives and the expected increased contributions to the EU budget are kept to a minimum (European Commission, 2018). In an age of reform, new action is required by the European Union Members to steer a stable passage for both the UK and the EU. Adjustment through contribution increases will pose a threat to NEXT plc for the countries in which they operate, as each state of central Europe may pose obstacles for any of the company’s activities. Countries such as Germany, Austria, Netherlands and Sweden will see a 12 to 14% change in national contribution to the Union.

The impact of increase in contributions on Member States' net balances.

Figure 1-1 (European Parliament, 2018)

Furthermore, the Britain Brand that for many years has been a pop element and weapon of sales may be under fire due to the effects of Brexit. It is expected that Britishness will cease to remain as relevant and powerful as it is at the moment, WGSN reports; creating an entirely new problem for the UK market, brand limiting. Britain’s withdrawal from the global stage marks the country out as less modern, innovative and relevant than previously perceived. On top of that, a tech and talent loss over required movement of thousands of people and their families outside of UK caused by tighter immigration rules will hamper fashion industry’s growth. A lot of uncertainty will keep investors at bay and new start-ups and ventures will drastically 8

slow down, mainly influenced by the devaluation of the pound. The fashion industry, being one of UK’s most important export industries accounting for a total 7.5 billion pounds in 2014 (FashionUnited statistics, 2016), could take a big hit also in the internal market; with prices of apparel, accessories and footwear likely to increase due to depreciation of the pound. A major drop in consumer confidence is the last thing NEXT plc would like to experience as that could have a significant effect on UK consumers that up to now have been familiar with financial stability, enjoyed low inflation and little to no price increases in the past six years, as underlined by FashionUnited.

Economic status quo The UK’s economy is very dependent on the long-term relationship with the European Union States. In fact, while the UK's biggest individual export trade partner is the US, over 62% of all exports went to the 27 EU Member States during Q1 2017, totaling £33.1 billion. And during this time-period the UK's top import partner was also an EU Member State, Germany (£17.6 billion worth of goods). The economic data, taken by GlobalSupplyDigital magazine really depicts the posing threat on the UK’s exports in case of a non-favorable scenario of trade agreements. A. Smith, M. Gasiorek and I. Serwicka, a team of economists from the University of Sussex and part of the UK Trade Policy Observatory (UKTPO) have made an extended analysis of Brexit and have a thorough report on the country. They report that manufacturing constitutes only 10% of the UK economy, though of course there are many jobs in services supporting and supported by manufacturing.

Manufactures are a much bigger slice of UK trade, accounting for 44% of exports and 57% of imports; and 47% of our exports of goods and 55% of our goods imports are traded with the EU (UKTPO, 2018). The researchers have made extended reports and modeled five possible Brexit scenarios that include three country groups, as proposed by them: the rest of the EU, the 67 countries with which the UK presently has free trade agreements with

Map of EU FTAs

Figure 1-2 (Wikipedia, 2018)

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through its current membership of the EU (FTA67), and the rest of the world (ROW).

The possible scenarios suggested are: a) EEA (European Economic Area), the ‘softest’ Brexit where the UK leaves the EU Customs Union (CU) but maintains a Free Trade Agreement (FTA) with the EU and keeps full membership of the Single Market. In this case, increased border inspections are expected that would increase trade costs between the EU and the UK by approximately 3.5%. b) FTA with EU and FTA67, such a scenario incudes leaving the Single Market but an FTA is signed with the EU, resulting inbilateral tariffs with the EU being close to none. c) FTA with the EU, where the UK maintains an FTA with the EU but not the 67 nations that have an FTA with the EU at the moment. Although in such a scenario the costs of trade between the EU and the UK remain low, the trade with the rest of the FTA partners will see a rise from low to high. d) No Deals, an assumed possibility of no trade agreement between the UK and the EU nor FTA partners and the trade is operated under the World Trade Organization (WTO) terms. e) FTA with FTA67 and ROW, in which model, a no deal with the EU is landed but the UK manages to sign an FTA with all non-EU countries. That includes existing FTA partners of the EU and new FTA’s with all other countries that the EU does not have an agreement with at the moment.

How different Brexit scenarios will impact on prices, exports, imports and output in the manufacturing sector Figure 1-3 (UKTPO, 2018)

The textiles, apparel and footwear sectors seem likely to shrink as a result of Brexit, as a very high proportion of their output is currently sold in the EU market and they appear likely to experience relatively large declines in exports after Brexit. Although it is correctly argued that you do not need a trade deal to trade, just as the USA does not have one with the EU, exporting will be faced by tariffs and even worse, non-tariff barriers where now none of them take place; non-tariff barriers such as regulations, especially for services, make up 80% of the British economy. Outside the customs union, Britain would also face customs checks for rules of origin, which could add 10

between 4% and 15% to the costs of exports (Economist, 2018). Although the UK is a member of the WTO, its tariffs, quota and subsidy rules are fixed by its EU membership. In a Post-Brexit environment, it needs terms of its own that will take place after negotiations but for sure will include tariffs on cars, pharmaceuticals and most agricultural products, without the costs of services included. As it is reported on the Economist, on January 24th by Greg Hands, the international-trade minister reassured the trade select committee that of the 70 nations with which the government had held discussions, none had any interest in erecting new trade barriers. UK Prime Minister Theresa May hopes that the EU’s 27 other State Members will not stand united and will try to maintain the option of access to the large British market open. But between now and December 2020, it is feared that plenty could go wrong.

Although a scenario of operating under WTO regulations is feared by most, a potential opportunity for the UK may arise, to take on a leadership role in the organisation UKTradeForum notes. The first thing to note is that the WTO has a very flexible structure of governance, without the UN-style Security Council here, that has a core of permanent members written into its constitution. The practice of consensus-based decision making may impede rapid progress but it gives everyone a voice, including the UK whom could play a leading role in the WTO and concrete the manifestation of “Global Britain” in action. The amount of time needed for any negotiations to take place will probably be a long and exhausting trip, keeping in mind that negotiations between Canada and EU for an FTA started back in 2007 and still are not in place.

Aftermath The British Pound inflation faded away as numbers show it was weaker than expected in February 2018, yet is at more than double the rate in Germany and France, and even higher than in the United States. Prices in manufactured products have seen a rise since November 2016 as the cost of raw materials (mainly imported) rose by 3.4% (FashionNetwork, 2018). In March 2018, the Economist did an analysis of three scenarios, remaining in the European Economic Area (EEA), which means staying in the EU’s single market like Norway; a free-trade agreement (FTA) similar to Figure 1-4 (Economist, 2018)

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the EU’s with Canada; and trading only on World Trade Organization (WTO) terms. Cumulative GDP growth in 15 years’ time is trimmed in all three cases suggested by the Economist, by an average of 1.6 percentage points for the EEA option, 4.8 points under an FTA and 7.7 points on WTO terms (see chart). No matter the point of view of the outcome of Brexit, pessimist or optimistic, understanding this chaotic phenomenon is fundamental to break the code and make sure of the sustainable development of NEXT plc.

Micro environment analysis NEXT plc today Since 1982, NEXT plc has reinvented the UK retailer scene, with radical and envisioned changes that over the years placed the company in the top performing brands in the country. Today, a big and healthy corporation that operates in more than fifty countries and contracts nearly 2000 factories worldwide, maintains transparent, strict auditing and a bold corporate responsibility profile, but is about to face one of the most complex contemporary history issues of our time, Brexit. Only in European Union countries a total of 59 factories of apparel operate for a fast order and delivery scheme for NEXT plc. Also, another 4 factories in the wider EEA work with the company as of today. Namely: 8 apparel factories in Bulgaria, 7 in Italy, 19 in Portugal, 23 in Romania and 1 in each Hungary and Germany have an active contract with NEXT plc. Also, 1 in Moldova, 2 in Macedonia and 1 in Ukraine contribute to the sum of suppliers from European countries.

The major problem surfacing as Brexit approaches is how complicated and costly maintaining operations within the Member States of EU will be.

With a quick look at NEXT plc’s economic history, the last ten years of the company show a stable rising trend of sales and profit with minor fluctuations, as visible on the company’s corporate website. The company is built on pillars of ethical manufacturing that include a holistic approach from the production process, materials used, energy used and at last but not least the working conditions of everyone involved in the chain of process. Focused on ethical manufacturing and supplying, including all contractors of Tier 1 and Tier 2 factories, NEXT plc is challenged with maintaining what has been achieved to this day in the face of Brexit’s aftermath. Even though the biggest economic entities in the world, the European Union, the United States and China, do not have free trade agreements with each other, they are among each other’s largest trading partners (Yueh, 2017). The UK managing to maintain a China-like model without a lot of FTAs but still trade with the rest of the world is an opportunity. Pierre-Louis Vézina argues that we don’t really know about the reverse effect, that of undoing a trade agreement as it hasn’t really happened before. Trade agreements bring about trade relationships, 12

they create new business links, and they allow firms to introduce their products in new markets. These relationships persist because it takes time to find the right supplier, the right products, to write up contracts and establish trust relationships. Therefore undoing a trade agreement probably does not destroy as much trade as signing a new one creates (Vézina, 2017).

The next step No matter what type of Brexit, the affect is likely to increase administrative burdens and costs relating to taxation, especially value added tax (VAT) and customs duties. On the other hand, leaving the EU would give the UK some flexibility on VAT rates and the freedom to bestow tax exemptions and reliefs for VAT and direct taxes. This has led some to suggest that post-Brexit Britain might become a ‘tax haven’, with low rates of tax and other inducements, to encourage the inward investment that will undoubtedly be needed (Freedman, 2017). NEXT plc can use this to even out and balance cost increases of materials, though it is only a hypothetical scenario at the moment. Trade flows between the UK and EU will be damaged by Brexit to a possibly significant extent. The UK Government appears to believe that some losses in UK-EU trade can be made up by a more open UK trade policy towards the rest of the world (Hine, 2017). So among the possible options for NEXT plc is to be prepared for a possible flexibility from the UK government in both taxation and trading with the rest of world. A strong opening is strengthening relations and looking into expanding operations in countries that the company already works in and looking into new and upcoming economies to subside in this time of need.

The UKTPO support that there is considerable variation across manufacturing sectors and while textiles, clothing and footwear production may see the largest decline, food-processing sectors may see growth in domestic production. As the biggest declines in imports are expected to be in the food-processing sector, a market opportunity may arise for domestically produced and processed foods that could expand NEXT plc and level out losses from the apparel sector. Understanding and focusing around caring and embracing the consumer as an overarching act of getting back to the roots of the British values, seems to be a promising venture area for food products. It will align with the brand’s goals and aspirations and in times of turmoil will make a significant stand among the brawling arena of the mid-market. Adopting a model store/café to check how such an action could be accepted by the UK consumer culture could be an option for initial implementation.

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Ethical operation, the main objective The main goal for NEXT plc at this moment is to maintain the ethical standards that the company has put so much effort into achieving all these years. In order to do so, they need to ensure the welfare of workers in the manufacturing plants and their sourcing contractors. A proposition about implementing a slow fashion model that goes beyond the classic model of fashion seasons is suggested. Having a core set of specific pieces that can be accessed throughout the year could provide an upgraded ethical USP and assist in cutting down costs on some product lines. Of course basics and essentials (t-shirts, underwear lines etc.) do exist but focusing an area of marketing around it and the environmental impact could enhance the brand’s identity. Brexit may turn out to have a significant silver lining. The exit from the European Union may require the UK to quickly renegotiate existing FTAs and will most certainly require them to request deals with new partners. This would present a moment of opportunity for economies with a heavy reliance on trade and manufacturing, to negotiate and renegotiate more favorable trade terms applying UK ethical standards. These trade deals can be deeper than existing EU agreements and can include emerging issues such as nontariff measures and ecommerce (Jacob,Graham and Moller, 2017). Such a scenario brought to life will make it easy to support upcoming and promising economies, such as Israel, Philippines, Malaysia, Indonesia and Mexico.

China will likely remain a dominant player in global manufacturing for the foreseeable future, and will likely continue to be the leading production option for many companies, especially those serving markets in China and other parts of Asia; however, this is no longer the only option. Starting to look further ahead and to consider alternative locations both within and outside the Asia-Pacific region is very promising (Buelow, Gish and Timberlake, 2013).

Walking off the beaten path for both the UK and NEXT plc may be risky but since the countdown for Brexit has begun, it is best advised to go wit with the flow and try to adapt to changes as fast as possible.

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The Future of NEXT Consumers and Economic Overview

Chapter 2

- Yu Yun Hsiao

Background After the Brexit referendum on 23rd June 2016 (BBC, 2016), there is a transitional period that will last from 29th March 2019 to 31st December 2020 (BBC, 2018). The negotiations of future relations and business collaborations are being processed throughout the transition period in order to smooth the way for post-Brexit relations. However, the new post-Brexit rules between the UK and the EU still cannot be clarified, as it yet remains firmly vague on the matter. Therefore, this chapter states how Brexit will influence NEXT plc’s trade with EU members and British consumers’ buying behaviours by dividing them into two sections, namely from the insights of hard-Brexit and soft-Brexit. This chapter also aims to discuss NEXT plc’s sales, marketing strategies and operation in the short-term and the medium-term from UKEU current economic scenarios as well as taking into consideration NEXT’s customer opinions in order to counteract the economic effect of Brexit and enhance consumer engagement.

A recap of Hard Brexit and Soft Brexit scenarios In the view of hard Brexit, the UK will not remain a Member State within the European Union which would mean giving up their rights and participation in both of the EU’s single market and customs union, therefore the UK would be forced to adhere to the World Trade Organisation rules for trading with the EU (EveningStandard, 2016). Moreover, it could also affect the UK fashion industry’s global reputation and value in the future (Cinck and Lehl, 2018) due to the operational determination of tax arrangement and working conditions being a concern of UK marketers; but 95% of them also support the perspective of the necessity to shape a stronger ethical policy and maintain their brand reputation (Handley, 2017). Therefore, retail analyst Jonathan De Mello points out that the major drawback risk of a hard Brexit would be increased costs and inflation when the UK imports and exports to and from the EU; resulting in prices on the high street further increasing. It is also inevitable that UK consumers need to afford the price of products that are creeping up when the retailers pass the price pressure onto them (Hickey, 2018).

Once the United Kingdom does exclude their self as a Member State of the European Union, they would also lose their rights and privileges of being a Member State. Those rights can be seen under the Treaty of the Functioning of the European Union (TFEU). In regard to tariff barriers, Article 30 of the TFEU states that ‘customs duties on imports and exports and charges having equivalent effect shall be prohibited between Member States. This prohibition shall also apply to customs duties of a fiscal nature.’

Also, under Article 110 of the TFEU states that ‘no Member States shall 16

impose, directly or indirectly, on the products of other Member States any internal taxation of any kind in excess of that imposed directly or indirectly on similar domestic products. Furthermore, no Member States shall impose on the products of other Member States any internal taxation of such a nature as to afford indirect protection to other products.’ It is noteworthy that lower domestic consumer confidence would be dramatically influenced by this economic turmoil, such as devaluation of the British pound, trade tariffs and trade surplus, resulting from a hard Brexit, as well as tarnishing the interests of the UK retail sector, said Bernadette Kissane, and the UK’s position in the EU supply chain as well (Snowden, 2017; Irwin, 2015).

On the other hand, the option of a soft Brexit would most likely result in accessibility to the single market. Hence, we can prevent the charge from non-tariff barriers to trade in products and services by complying the EU input and export legislation (FXCM; inthenews). As a result, Next plc can keep their relationship with existing EU suppliers as the UK might just need to follow a similar path to the Liechtenstein and Norway model (EEA), Swiss model (EFTA) or a tailor-made agreement; which can legally access the EU single market as they become one of these associations (BBC news, 2017; Sim, 2016).

Factors influencing the economy and the consumer The scenario of Consumer Price Index The Brexit effect upon the personal finance, household and the national economy, which would reflect on NEXT plc’s sales, can be noticed from the figure of inflation and the Consumer Price Index (CPI). The UK inflation rate is measured by product basket, which contains the products and services on which the average consumer spends money throughout the year. In 2015, the average inflation was at only 0.04%, but it has surged dramatically since 2016, which incidentally is the year that the British people voted ‘yes’ in the referendum (see Figure 2-1). Next, we can compare the inflation rate CPI as they have a mutual effect. The bar chart indicates from previous years to 2022, the CPI rate significantly climbed to 2.7% after the referendum vote for two years, and it is predicted to fall to more or less by 2% come 2022, but the figure will reach a plateau in the next four years (see Figure 2-2; Statista, 2018). Nevertheless, the pound has been climbing since the deal of the Brexit transaction terms was released (Kuenssberg, 2018), resulting in both the inflation and CPI slightly returning and improving. Therefore, we assume that the effect of inflation on consumers would remain steady from now on to 2022.

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United Kingdom: Inflation rate from 2012 to 2022

Figure 2-1 (Statista, 2018)

Forecasted percentage change on a year earlier of the consumer price index (CPI) in the United Kingdom from 2016 to 2022

Figure 2-2 (Statista, 2018)

The scenario of household disposable income and consumer spending The statistic of Figure 2-3 also illustrates the index of real household disposable income per capita in the UK from Q1 of 2016 to the following 4 years. The rates were only less than 1 index point during Q1 of 2016, whereas it is forecast to increase by 10 times, over 105 index points in the third and fourth quarter of 2020 (Statista, 2018).

PwC (2017) further analyses their main scenario of household disposable income projection (see Figure 2-4), which is combined of real gross household disposable income growth (see appendix 1) and projections of the adjusted household saving ratio (see appendix 2) in the alternative PwC scenario: â€˜â€Ś real household consumer spending growth will slow down from around 3% in 2016 to around 2% this year followed by a further moderation to 1.7% in 2018. A squeeze on real disposable income growth from higher inflation is the main factor behind the 2017 slowdown, offset in part by some further rise in household borrowing leading to the adjusted savings ratio falling into negative territory this year. Real disposable income growth is projected to be somewhat stronger after this year, but with the savings ratio flattening off this leads to a further moderation in real consumer spending growth in 2018, followed by a gradual recovery to around its 2% long-term trend from 2020 onwards. This growth profile is broadly similar to the latest OBR forecasts for consumer spending, although they expect an even greater slowdown in 2018 in particular.’ Their projection shows the growing prospects for consumer spending in 2016 but it was predicted that it would become gradually ameliorated in these years. Therefore, we can speculate that NEXT consumers still have a high possibility of shopping via the online platform more than the physical 18

store, and the quality of garment issue should be contained. We will further explore the consumers’ attitude toward this matter later on in this chapter.

Forecasted percentage change on a year earlier of real household disposable income in the United Kingdom from 2017 to 2022 Main scenario projections of growth in real household expenditure

Figure 2-4 (ONS, 2017) PwC estimates and projections for later periods. The gures for 2021-30 are illustrative assumptions for consumer spending only based on alternative views of long-term trend UK GDP growth.

Figure 2-3 (Statista, 2018)

The scenario of Consumer Confidence Index However, the pressure for structural change in a progressively competitive economic system, such as Brexit, has resulted in raising concern over socioeconomic problems as well as consumer confidence level (Macqarie, 2016). The consumer confidence Index can measure the consumers’ attitudes towards current and future economic conditions; this consumer outlook can be both optimistic and pessimistic (Amaded, 2017; Pettinger, 2017). Besides, an analysis from Macqarie (2016) indicates that there are five factors that usually have an impact on consumer confident, including interests/exchange rates, employment/unemployment movement, large external economic/financial shock and government fiscal policy change, all of these primary factors are significantly relevant to the issue of the postBrexit effect.

According to OECD data (2018), Consumer Confidence Index (CCI) dropped since the Brexit referendum in June, from 100.86 to 100.51 Index point in July of 2016 (see Figure 2-5). The survey dates back to 2015, the month of April showed the sharpest month-by-month drop until now compared to the EU area is constantly growing in recent years. Owing to consumer confidence being badly dented because of the consumers’ depression about the gloomy economic situation in the UK for the next following year. Nevertheless, their household disposable income is increasing, which means that they have stronger buying power after Brexit, so that means we need to intensify our consumers’ perception of NEXT plc via well-managed manufacturing performance and consumer service experience.

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Consumer Confidence Index (CCI) from June of 2014 to January of 2018 Figure 2-5 (OECD, 2018)

The scenario of import intensity From the angle of import intensity, PcW (2017) also remarks the that the clothing and footwear sectors have the highest import intensity which would lead to cost pressure; especially for traditional high street retailers, so NEXT plc as a high street retailer will face increasing competition from other retailers and discounters and therefore suffer from a combination of squeezed margins unless they escalate the cost and decrease sales volumes.

Tax, regulation and legislation 1. VAT UK VAT law is currently the rate set which is derived from EU legislation, although the UK will maintain a parallel VAT system now, however, whether the VAT rate would change is subjective in question as different government parties have different policy opinions, creating a degree of uncertainty. British Retail Consortium, which represents 70% of UK retailing, illustrated ‘If the bill becomes law without any commitment to inclusion within the EU VAT area, UK businesses will become liable to pay upfront import VAT on goods being imported from the EU-27 for the first time.’ Furthermore, they added that this issue would cause substantial cash flow pressure to UK retailing companies when they need to import goods from the EU, as well as requiring more processing time to enter through the customs process; these might also impact on product transportation from EU factories to the UK (Helm and Inman, 2018).

2. Effects of Brexit on the UK consumer regime Conway (2017) states in the briefing paper of the House of Commons Library, the UK consumer regime is a complex combination of domestic and EU law, which covers a wide range of goods, services and digital content.

At the moment, although the referendum has been and gone, the UK still has to comply with EU law until the formalities are met. Meaning there is 20

still no changes to the rights of UK consumers. But, it is unlikely that the Government would make major changes to the consumer regimes due to the introduction of the new Consumer Right Act 2015.

In the short term, UK consumer rights are based on EU Directives, which still apply until the UK Government decides to change the law. To do so, the European Union (Withdrawal) Bill, which is progressing through UK Parliament, must be passed. The purpose of the Bill is to repeal the European Communities Act 1972 which would allow the UK Parliament to gain back sovereignty, allowing them to amend, repeal and improve any laws as necessary. In regards to the Bill, it would strengthen the principle of Parliamentary supremacy, which gives extensive powers to change EU laws that the UK has to comply with. This would create an uncertainty with protection for consumer rights. Also, when Parliament gains back supremacy, some elements of EU law will not be retained, as Parliament will have the power to again amend, replace or repeal it.

In a nutshell, the UK government cocoons our consumers against the post-Brexit economic crisis. They also have power to decide the trend of UK economy, which may be more beneficial to every industry, including the fashion industry. Therefore, we believe that UK government is ironing out this murky issue that is related to consumer confidence.

Pricing concern from British shoppers In light of British consumers’ concern, Mintel’s analysis of consumer spending across all major markets in their British Lifestyles report shows the main concern of post-Brexit by more than 80 per cent of UK shoppers is price fluctuation in the first half of 2017. It was due to the fact where they fear the price would considerably increase on products and services, and about 26% of these shoppers are worried that clothing prices may go up in the short term; these concerns already reflect on consumer behaviour. However, Mintel (2017) also points out that despite the balance of opinion being pessimistic, most of the British people still think it will not have any direct effect on them at all, the feeling of stress surrounds their household income and career prospects.

Therefore, Rodionova (2017) further notes the British attitude towards the influence of post-Brexit has softened, because the consumer belief that post-Brexit will affect the UK’s economic growth has dropped from 39% in 2016 to 31% one year later. The Deloitte’s survey (2017) also indicates that the main consumer concern at the end of 2017 was the NHS (85%), environment (64%) and retirement, which accounted for 54% of the total.

Besides, in terms of the sector specific challenges, almost two-thirds (63%) of respondents think the cost of holidays, followed by food and nonalcoholic drinks (55%), whereas clothing and footwear only account for 47% 21

in total (ranked fourth). As a result, these issues will be directly affected by the consumer’s disposable income and spending power of Brexit. Hence, Noon, a UK & Global Brexit lead at Deloitte, said: ‘Consumers drive the UK economy and have so far shown resilience to the uncertainty surrounding Brexit.’ Their survey of British personal finance also noted that only one-third of these UK respondents stated their financial status had worsened since the referendum, by contrast, over 60% of them feel an improvement or steady.

From this point of view, we can see the situation is coming towards the middle ground from the original polarizing debate, and consumers may actually be more resilient than feared. As a genuine and consumer-driven fashion retailer, NEXT plc still needs to be well prepared for these volatile economic situations which have a knock on affect on consumers against any issue may be generated by post-Brexit. Therefore, this report has designed a survey that looks into consumer attitudes towards the quality of clothing and prices.

Consumer survey The online survey sample consisted of NEXT customers who have shopped via the online site, directory or physical store. The questionnaire was distributed to the social media platform Facebook, and introduced the purpose of this project; the pattern of questions included open-end, single choice and a five-point Likert scale. Respondents were first asked about their frequency of shopping in NEXT, followed by their average transaction amount, and the remaining questions related to the ethical issues of merchandising, buying behaviour and attitudes towards economic volatility.

In total, 107 participants replied this questionnaire; the remaining sample size was 100. Approximately two-thirds of participants were female, and the majority of participants’ age group was from 18 to 25 years old.

Participants who were over 45 years old accounted for a quarter in total, followed by 26-35 and 36-45 age group, making up 10.71% and 24.99%, respectively.

According to a five-point Likert scale that ranged from 1 (strongly disagree) to 5 (strongly agree), the average mean effect of inflation on customer buying behaviour was about 2.86, only a small section of people argued that inflation would influence their shopping frequency, whereas about three-fifths participants agreed that they will not be affected by inflation. In addition, around half of the participants maintain they are willing to pay more money for decent quality clothes rather than uneven quality clothes while merely 10 per cent of these participants indicate they’d like to accept the lower quality of garment.

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Chapter summary & preliminary suggestions In the atmosphere of Brexit, the UK has been undermined with regards to the economy and consumer attitudes. Figures from Visa conclude: ‘A fall in high street shopping and spending on transport drove a decline in overall UK consumer spending in January for the first time in five years’.

This phenomenon accelerates our biggest concerns of consumer buying behaviour, demand and shopping frequency and per-customer transaction, would be shifted due to the squeeze. However, the figures and predictions mentioned above, remind us to remain neutral as the report from Blitz (2018) asserts that household retailing, including clothing and footwear are rising 3.7%, this figure demonstrates that the high street still has the latent power to alter the current situation. This chapter also found that inflation does not have influential power on NEXT customers, this could indicate that this belief would be sharpened when the transaction period is valid. Furthermore, the participants also present their willingness to pay higher prices to balance the cost; so rundown clothes should not be NEXT’s alternative strategy. As a result, we aim to intensify the NEXT consumer retention by not passing too much additional cost onto them, so that we can retain customer loyalty and appeal them to shopping in NEXT while the majority of other high street retailers are escalating the price as an alternative strategy.

First of all, if the UK does implement a hard-Brexit, we suggest that NEXT plc focus their supply chain on those countries outside the EU. Especially the emerging market, such as Turkey, Pakistan, Bangladesh, China, Cambodia, Myanmar and Pakistan as they can not only provide the duty-free when we want to access goods from them [UKFT, 2017?], but also have experience of collaborating with Next as well as having professional technicians in their factories. Therefore, we can decrease substantial cost from tax. Besides, instead of importing goods to the UK from existing EU suppliers, NEXT plc can cooperate with them to serve the consumers among the EU, resulting in saving the cost from tariffs and transportation. But in case of a soft Brexit, NEXT can retain their EU factory relations that they have previously practiced.

Secondly, this chapter suggests that NEXT plc can consider implementing the strategy of centralized procurement. This can reduce cost, regulatory expenses and reduce delivery charge as NEXT plc has a large amount of deliveries to manage and they can centre all transactions in specific locations. Hence, NEXT plc can manage the quality and train their employees at the same time; it is worth noting that NEXT plc can have better ties with their supply chain. A report from an Asia press organisation, The Storm Media, demonstrated that MUJI decreased the price of their spring/ summer 2018 collection by approximately 15%, as they benefited greatly from centralizing purchasing. For example, they transformed the way they 23

used to practice - decentralized procurement to centralized procurement, so that they only focus on the sourcing of linen from France rather than a mix of different countries. This technique can be exploited with either a hard Brexit or soft Brexit deal.

After analysing the impacts of post-Brexit, this chapter believes that the customer should always come first and adding price pressure onto them is not the premier proposal. It is therefore contended the best tactic is to reduce the costs that import and export tariffs might cause, in that case we provide the cost-efficiency strategies, which can address the hassle of postBrexit.

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The Workforce, Human Rights Abuses and The Ethical Consumer

Chapter 3

- Hannah Blackburn

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Background With immigration numbers dropping dramatically and increased concerns over the rights of EU workers in the UK (Sparrow, 2017), this chapter will attempt to lay out the potential direct effects that Brexit will have on NEXT plc’s workforce when the UK officially leaves the European Union. With the large amount of Eastern European workers currently operating in NEXT plc’s UK supply chain (NEXTplc.co.uk), it is imperative that these employees are not over looked and are considered in all aspects of the company’s postBrexit strategy. Firstly, this chapter will look into the current state of the UK fashion supply chain and the struggles that British businesses are facing with regards to human rights abuses in factories. Leading on from this, an insight into the effects of the Brexit referendum so far on the UK’s European workforce; finally, this will be followed by an analysis of primary research based on the ethical awareness of NEXT’s customers and how their opinions and experiences can effect the future of the company’s ethical trading policy.

Human rights concerns post-Brexit As the government has stated their intention to end free movement post-Brexit, there is a risk of an introduction of overly restrictive immigration policies, which may lead to the increased vulnerability of migrant workers, causing them to be exploited and abused (antislavery.org, 2017).

Unauthorized employment is becoming of particular concern for some businesses, since the combination of some industries’ reliance on EU workers, and the ease of travel to the UK could facilitate recruitment into low-wage jobs that are not eligible for work permits (Sumption, 2017). Whilst there are Non-governmental Organisations (NGOs) in place, such as NEXT plc’s current partner Shift (Nextplc.co.uk), to monitor and deal with issues regarding modern slavery and human rights, there has been a reported lack of a central, statutory body with the responsibility to collate and analyse data on both victims and perpetrators (Focus on Labour Exploitation (FLEX), 2016), leaving substantial room for improvement.

In early 2018, MP’s voted against including the European Charter of Fundamental Rights in UK law after the Brexit transition, this charter includes equality provisions and employment rights governing how workers are treated (Kentish, 2018). This has led to concerns from the Equality and Human Rights Commission that there will be gaps in certain areas of human rights laws as the charter includes rights that do not have direct equivalents in other UK human rights law (Equality and Human Rights Commission, 2018).

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Previous mistakes and consequences – the state of the UK supply chain Despite growing demand for British-made fast fashion in order to cut lead times, the state of the UK apparel supply chain isn’t one to be admired in its current condition (Blanchard, 2017). The worry is, unfortunately, that the effects of Brexit on citizenship will force the state of UK apparel factories to spiral out of control rather than improve them in any way.

Only recently in 2017, Channel 4’s Dispatches series documented that several large British retailers had workers in their supply chain suffering on low wages of just £3 an hour (Armstrong, 2017), a far cry from the wages of sweat-shop employees outside of the UK, however in this developed country the backlash from this discovery was detrimental to the reputations of those brands involved.

With a large chunk of UK apparel factories located in Leicester, employing approximately 10,000 garment workers collectively (Makeitbritish. co.uk, 2017), including those few in which NEXT plc operate, there is a catastrophic domino effect on all brands associated with the area. Along with obvious damage to the lives of the workers involved, any bad press surrounding garment factories in which NEXT plc operate could have a damaging affect on sales, as seen with New Look in 2017 after a raid of one of their Leicester based factories (Armstrong, 2017).

With the current state of UK supply chains, particularly those in fashion, regardless of the additional potential impacts of Brexit, the government has promised to impose tougher measures on large companies not abiding by official labour laws (Wightman-Stone, 2017). Meaning that NEXT plc should be prepared to clamp down on their own supply chain employees now more than ever to avoid repercussions.

British factories in worse condition than Asia

Figure 3-1 (The Telegraph, 2017)

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Immigration decline According to the Office for National Statistics (ONS), net migration in the year ending September 2017 was 244,000 people, a significant decline compared with figures from the previous two years. Among these statistics, the number of EU citizens coming to the UK has dramatically decreased by 47,000, whilst the number of EU citizens leaving the UK is at a record high of 130,000 in the year ending September 2017 (Dearden, 2018). These figures suggest that the Brexit referendum has had a huge impact on migration so far.

However, an opinion poll carried out by KPMG showed that Britain still remains an attractive destination for both EU citizens working and living in the UK and potential EU workers still living overseas in their home countries (KPMG, 2017). However, half of those surveyed in the UK said that they felt less welcome and valued showing that emotional feelings rather than just practical factors, contributes to the decision making process of EU workers living in the UK (KPMG, 2017).

Although at first glance these figures on immigration decline may seem worrying to a UK business with high European employee rates, the statistics do show that whilst migration from Europe is decreasing there is in fact a rise of migration from outside of Europe (Hervey, 2018); moreover, net migration still remains at historically high levels and above the government’s target (Shaw, 2018).

Figure 3-2 (OECD, 2018)

Hard Brexit vs. Soft Brexit Firstly, this section will give a brief definition of hard and soft Brexit and 28

then analyse the different scenarios that either a hard or soft Brexit could lead to. Hard Brexit has been defined as an arrangement that would see the UK give up full access to the single market as well as full access of the customs union (Sims 2016). Whereas a soft Brexit deal would involve the UK keeping string ties with the EU with regards to the single market and free movement (LBC.co.uk, 2017).

Dependent on the type of deal that the UK and EU agree on by March 2019, the matter of European workforce in the UK could be dealt with in several different ways, whether these be modified versions of free movement or work permit systems (Sumption, 2017). Although free movement would be the most optimistic outcome for any British based company, this migration model is becoming less likely to be implemented as the country moves ever closer to the official leaving date (Rayner and Swinford, 2018).

With leaked home office documents in the public eye it has become evident that there are strong plans to restrict the migration of ‘lower-skilled’ EU workers after Brexit, resembling a hard Brexit stance on immigration.

(Parker, O’Connor, Chaffin 2017). This ultimately means that lower-skilled EU citizens wishing to move to and work in the UK post-Brexit will suffer most at the hands of immigration control (Watts, 2017). Although there is no single definition of low-skilled workers, the official government guidelines are based on a skills classification formula designed by the Office for National Statistics (ONS), this formula is based on how long it takes an individual to perform a task required of them based on either formal qualifications or onthe-job experience, rather than simply analysing one’s job title (Morris, 2017).

With this in mind, it is still unknown whom exactly this deterrent of low-skilled workers is likely to affect in the immediate years to come.

A leaked home office document laid out plans to introduce “right to work” checks as part of a hard Brexit movement; these would have to be carried out by employers, with the possibility of criminal sanctions to be implemented to both companies and individuals if illegal workers are discovered (Hopkins and Travis, 2017). If this plan is implemented in the final withdrawal deal, NEXT plc could either benefit or be at a serious disadvantage. This new legislation could potentially encourage NEXT plc’s UK supply managers to be more thorough with their right to work checks as well as discouraging them from engaging in illegal activity such as knowingly hiring employees that have no right to work in the UK. However if illegal activity were discovered in the UK supply chain, these plans would have detrimental legal implications on the supply chain workers as well as NEXT plc themselves. Although there is already legislation in place to crack down on the issue of illegal workers, such as fines of up to £20,000, this is still a significant issue in the UK fashion supply chain (McFadyen, 2017).

The majority of European businesses are still expecting a soft Brexit deal to be agreed upon by the UK government and the EU (Brunsden 29

2018). This would most likely take the form of a Norway-style membership of the European Economic Area (EEA) which would allow the UK almost full access to the Single Market while also letting it make deals without the rest of the EU (Bulman, 2017). Along with this, Norway also has free movement of people, not just goods. Although this could be seen as a solution for businesses that rely on European workers in the UK, the government is not likely to reach this sort of deal, as it would mean higher levels of immigration from the EU to what the UK currently sees today, with an estimated 400,000 additional EU migrants per year (Openeurope.org.uk, 2014).

Although a withdrawal agreement has now been drafted, this was in fact written up by the European Commission and not the British government (Green, 2018); henceforth there are still sections of the draft that have not been agreed upon by both parties and are still open to debate and amendment, therefore as of yet nothing can be taken as set in stone (Gov. uk, 2018). However, the fact that a withdrawal agreement has been drafted up after months of talks, this is a sign that Britain and Mrs May’s government could be leaning more towards a ‘soft Brexit’ deal as this would be the easiest way to achieve a deal with the European Union (Colson 2018), however, this is still not confirmed.

The ethical consumer Transparency in the fashion supply chain is becoming an increasingly high demand of fashion consumers; with persistent media coverage and a growing amount of new anti-sweat shop campaigns arising, British fashion retailers now have no choice but to offer a certain amount of transparency to their customers. A recent survey has found that nearly three quarters of UK consumers would boycott a brand if they no longer trusted the way it was run (Edwards, 2017), showing that now more than ever brands need to have a strong ethical practice, be honest to their customers and therefore be trusted by their customers (Chase, 2017).

NEXT plc currently has a strong ethical trading policy and it is a fundamental part of the company’s strong place in the UK fashion retail market, but to what extent do NEXT’s customers really take ethics into consideration and does this so forth effect their buying habits? By conducting a survey aimed at NEXT shoppers, this section will give a brief insight into the opinions and purchase intentions of NEXT customers regarding ethical trading and standards.

Firstly, analysis of the five point Likert scale provided to participants strongly suggests that NEXT customers feel it is important for the brand to have a strong ethical trading policy. When asked what their other favourite brands were, Marks and Spencer was a strong contender for a large amount of respondents. With their strong ethical trading policy in place (Beavis 2012), 30

this data suggests that consumers do think about the ethics and quality of their go-to brands and that NEXT must reach this level of standard, similar to the likes of competitor Marks and Spencer.

On the other hand, the majority of respondents said that the country in which their clothes were made did not affect their buying habits. This research suggests that NEXT customers have a level of trust in an ethical trading policy and trust and expect that these standards be carried out no matter which country their products are being produced in, hence leaving NEXT plc open to expanding the location choices of their supply chain without worry over customer concerns.

One particular concern for UK fashion retailers post-Brexit is the whether potential movement of the supply chain to countries which would accept lower manufacturing prices would effect the quality of the apparel (Hochberg et al., 2006). However, the survey showed that around 3.5 out of 5 people prefer to pay more money for a higher quality of clothing. With this in mind, it is possible that a slight rise in NEXT apparel pricing could be increased with no repercussions for sales figures. This leaves room for NEXT plc to work with their current European suppliers in negotiating costs postBrexit if it means keeping the quality of manufacturing and the conditions of labour at the highest level possible; even with the possibility of an introduction of tariffs on the horizon. Moreover, it is essential that the quality of NEXT apparel as well as labour conditions does not decrease in order to save money, as this survey suggests quality is very important to the consumer and they may be willing to soak up some of these potential extra costs in order to receive a higher quality product.

In conclusion, the survey strongly suggests that the NEXT customer requires a high standard of ethical practice within the brand and trust that NEXT are already delivering high quality apparel that have been made with an ethical process in place.

Chapter summary & preliminary suggestions The path to Brexit is still an unpredictable and uncertain one, not only for UK businesses but even more so for the lives of EU citizens living and working in Britain. It is of vital importance that NEXT supports both their Tier 1 and Tier 2 supply chain employees throughout the Brexit transition period as well as in the future.

This chapter concludes that a considerable amount of work needs to be done in order to create a closer relationship between NEXT plc and their supply chain employees. A certain level of trust must be obtained for an employee to feel safe in a work environment (Lipman, 2013), it has also been proven that there is a strong correlation between positive business results 31

and leaders who are highly rated and trusted by their employees (Zdaya, 2012). Moreover, research has suggested that high-performing companies tend to be led by executives who focus on involving employees in business decision-making and on allowing employees to share in the responsibility of the success of their company (Zdaya, 2012). These findings suggest that for a large company such as NEXT plc, reshaping and renewing the entire relationship of supply chain employees and NEXT plc executives could potentially improve the work ethic and trust of supply chain managers. To develop and manage this new relationship, this chapter suggests a marketing campaign targeted towards supply chain managers and their factory employees. The aim of this marketing campaign is to inform workers of their rights and the laws surrounding workplace conditions and abuses. Although factories should already display this information and workers should be aware, this campaign would reiterate available support to vulnerable workers as well as putting NEXT plc at the forefront of ethical trading initiatives in UK fashion retail.

On another note, a recent study that surveyed 2,500 businesses in the UK, France, Germany and Spain found that eight out of 10 respondents said their business have established a dedicated Brexit team to manage the consequences and identify opportunities during the transition as well as in the future (Brunsden, 2018). Although this would involve considerable cost, this could be a potential route for NEXT plc to take, as Brexit is such a complex issue that specialist knowledge may prove a worthwhile investment, for both legal and ethical advice.

Following on from these points, NEXT plc may need to prepare for worst case scenarios, with the aforementioned hard Brexit definitions meaning that the UK’s European workforce could face serious decline, this prompts an urgent need to look into potential future skills gaps in the supply chain. There have been talks of the government imposing a UK visa skills levy which could take the form of a £1,000 immigration skills fee payable by companies hiring EU migrants, this is in order to encourage more employment of British workers in British companies (McFadyen, 2017). With this in mind, it is worth considering the alternatives of hiring EU migrants and turning to the young British workforce for help in filling these skills gaps. Obviously this alternate route involves further costs with regards to training the future workforce in these special skills such as rapid garment manufacturing, however with the potential of an EU migrants skills levy, the costs may prove worthwhile and a good long term investment. Therefore, this chapter suggests a government-funded apprenticeship programme, targeted towards school leavers looking to gain specialist skills in a technical area such as garment production. In order to implement this suggestion there would be additional costs such as marketing and recruitment that would need to be considered by NEXT plc.

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Suggestions 1. Focus on digital marketing to enhance online sales on an international level and improve online presence in the Asian market specifically in order to expand NEXT plc later with a franchising model.

2. Assign a cross-department team to follow up with any changes on regulations and trade agreements for the UK and look for new opportunities that will arise over the transition period. In order to embrace the change, the threats of operating in Member States of the EU (if feasible) that will be contributing more to the Union, must be taken into account.

3. In case the UK makes VAT changes in order to help companies control costs and pricing, a balancing out of product prices is suggested for better upkeep.

4. Venture into the food industry by operating and supplying from the UK, promoting the fact that NEXT plc is getting back to their roots, caring and embracing the UK consumer. British values, seem to be a promising venture area for food products and a model store/cafĂŠ to check the market pulse is recommended.

5. Establish manufacturing and supplying contracts with and support upcoming and promising economies, such as Israel, Philippines, Malaysia, Indonesia and Mexico. Trade deals that either exist or will be made by the UK will strengthen the NEXT plc public identity of ethical procedures by operating in such countries.

6. Collaborate with duty-free countries which hold strong and professional manufacturing skills; in order to allow NEXT plc to take advantage of these in a retrenched strategy in the case of a hard-Brexit.

7. Employ the strategy of centralised procurement which can streamline supply chain procedures, with benefits being smoother goods management, transportation savings and overall control.

8. Implementation of a new marketing campaign targeted towards supply chain employees with the aim to build a strong and trustworthy relationship between NEXT plc and their supply chain operations, the campaign will highlight and reiterate human rights legislation and organisations which 33

support vulnerable employees.

9. To consider filling potential future skills gaps by turning to the British workforce, with a government-funded apprenticeship scheme which trains school leavers in technical supply chain skills such as garment manufacturing.

Further Research Analyzing how Brexit will impact Britishness as a brand marketing tool and decide on which countries to be used or nor accordingly. It is advised to use the local/British made concept in UK campaigns in order to align with people’s need for security.

For manufacturing and supplying from the EU Member States that provide the fastest deliveries and making times NEXT plc must consider what the company is willing to do or give up in order to maintain the expertise, knowledge and speed of making and delivery from the countries that they operate in.

Look further into the rise in ethical awareness among consumers and how this will affect NEXT plc and their current marketing strategy. Consider whether NEXT needs to become more open with consumers with regards to its products and manufacturing process.

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Appendix Appendix 1

Appendix 2

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Pestle Analysis Brexit affects on the UK fashion supply chain Political A withdrawal deal for Britain to leave the European Union has now been drawn up by the European Commission, yet only parts have been agreed upon by both the UK government and EU officials. The transition period in which new legislation will be adapted and implemented has now been extended to December 2020, meaning that there is still a long time to go before the type of Brexit that the country will face is confirmed. This leaves uncertainty for all areas of British business including fashion supply chains.

Economic Since the referendum, the value of the pound has fluctuated to an astonishing extent; however, the pound has now begun to settle and has steadily been rising back to its pre-Brexit value. This initially affected trade and concerned shareholders in British businesses.

In an overwhelming environment of uncertainty, British consumers are more wary than ever of spending their hard earned money. With inflation rising and expected to rise even more in the next few years, it is difficult to predict just how much this will affect consumers regarding their frequency of shopping and their basket size.

Social Since the referendum, Britain has been divided with only a small majority winning the vote to leave the EU. Initially, this caused tension throughout the country and sales throughout many sectors, including fashion, to significantly drop in this period.

There is also increasing concerns over the human rights of EU nationals living and working in the UK, as there is still uncertainty over what will happen to their residency when the transition period ends.

Technological It is possible that without working together, the UK and the EU will not be able to compete with the technological advances of other countries throughout the rest of the world. With technologically innovative countries such as Japan and South Korea to compete with, British fashion retailers could potentially fall behind with their lead times.

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Legal As Britain will now gain full control of its borders towards the end of the transition period; new legislation must be put into place to control immigration flow into the UK. This means that the UK’s current and future workforce entering from EU Member States will most likely face added difficulties in securing a permanent job and residency in Britain.

Along with this, the UK government has stated that that it will not be keeping the European Charter of Fundamental Rights, affecting certain human rights laws that the UK does not currently have equivalents of to simply replace.

As well as the movement of people, movement of goods will also be affected, resulting in new legislation and systems surrounding customs, meaning businesses must be prepared for the legal as well as economical implications of these new systems.

Environmental It is likely that some UK businesses will choose to move their supply chain operations outside of the EU in order to avoid the introduction of new costs such as border tariffs. This will have obvious damaging repercussions for the environment due to long distance transportations as well as the possibility of opting for flight deliveries rather than ship or truck, adding pollutions as well as cost into the mix.

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