"We wake up to the morning of unknown.
“There are challenging times ahead; we hope we can survive this turmoil. History has been written.”
These words from veteran system builder and Yoyotech managing director, CK, perfectly summed up the feeling on the morning of June 24th, after the UK voted to leave the European Union (EU) with a 52 per cent majority.
The decision came as a surprise to many and set off a chain of events that will still be felt for months and years to come. The pound’s value fell and hit a 31-year-low against the dollar in early July, reaching $1.279 at one point.
British consumer confidence fell to -9, its lowest level in five years according to GfK, while Parliament underwent some drastic personnel changes. Theresa May replaced David Cameron as Prime Minister, Nigel Farage quit UKIP and Boris Johnson became Foreign Secretary to name a few.
The UK is now set to invoke Article 50 of the Lisbon Treaty, which will set in motion the process of leaving the EU, giving the UK two years to negotiate its withdrawal. Until the UK actually leaves the EU, it will continue to abide by EU law.
In the meantime, looking at our industry in particular, the biggest change for businesses so far has arguably been the price rises.
With the weakening of the pound to the dollar, vendors including Dell, HP, Cisco and Lenovo have informed their channel partners to expect blanket price increases, including around 10 per cent for Dell and HP, and a rumoured 14 per cent from Cisco. Of course, you can expect distributors and resellers to raise their prices
“Any price increases will certainly not be absorbed by resellers, and will instead be passed onto end users."
Dan Todaro, Gekko
Dan Todaro, group MD at field marketing agency Gekko, tells PCR: “One thing for certain is that any price increases will certainly not be absorbed by resellers, and will instead be passed onto end users.
“Since the Consumer Price Index recorded pre-Brexit at -1 to a post-Brexit drop of -9, it is clear that Brexit will make trading not only difficult in bricks and mortar retailers, but also a challenge for the entire channel.
“The outlook for brands means that it will become harder to sell products at a price which consumers are accustomed to. The harsh reality of Brexit is that consumers will begin to feel the impact on the pound in their pockets.
“It’s not just about the exchange rate affecting components either – as fuel costs increase, so does the cost of transportation, which in any event will impact pricing further. This could, in particular, affect retailers with an omni-channel approach and online resellers which will look to recoup delivery charges.”
Due to the price hike, plus falling demand for PCs and the uncertainty around the economy, some big computing vendors are rumoured to be thinking about relocating their London offices elsewhere.
Chillblast sales director Ben Miles adds: “The calamitous sterling performance since the Brexit is extremely difficult to manage for any company that buys and holds stock in dollars but sells in sterling, as the UK tech channel essentially does.
“Consumers have to expect steep price rises for the foreseeable future.”
Ashley Sterland, The Change Organisation commercial director, believes the price rises can benefit those exporting to Europe.
“The weak pound provides the opportunity to offer better prices – while stocks last,” he says. “Now that the decision has been made, at least companies know where they stand, removing a degree of uncertainty and potentially giving them more confidence to press ahead with IT projects that were suspended pending
Entatech UK chairman David Atherton says the Brexit is not welcome.
“It’s something we really didn’t want in the distribution channel,” he comments. “This industry is about high-value goods, bought in US dollars, and distributed at wafer-thin margins in sterling.
“Everything is more expensive. That’s a damper on sales to start off with, coupled with the fact that the ‘leave’ vote just keeps the pre-referendum uncertainty going. Will there be continued volatility in the currency? When will we leave, what are these ‘new trade deals’ and so on? Resellers may be entirely British concerns, but their corporate clients aren’t, and client uncertainty means delays in buying.
“Worse still, some pan-European end users may decide, for compliance reasons, to move their business to a reseller within the Eurozone, for reasons as simple as all equipment being CE marked, for example.”
“It’s something we really didn’t want in the distribution channel.”
David Atherton, Entatech
One senior distribution source, speaking anonymously, fears rising prices may cause a recession.
“It will slow market sales down in the UK,” the source comments. “I believe that additional measures will also take place and it will put our economy into a recession. Why? The UK will not have [trade] agreements as good as we previously had, simply because we do not have the buying power.
“If we did decide to stay within the single market, then ironically we will still be paying the EU every week for that benefit, however we will still have free movement of people, we will still have to pay the EU yet we will have no voting or control of policy within the EU when it comes to making decisions.”
Canalys also believes the UK is in danger of moving into recession, as some businesses and consumers look to reduce risk by delaying spending, and placing a suspension on all high-value transactions until the situation stabilises.
It’s a politically unstable time for the tech market in general. Across the pond, more than 145 technology leaders have signed an open letter to the American people calling on them to oppose Donald Trump, naming him a “disaster for innovation”. Signatories include Apple’s Steve Wozniak, Samsung’s Richard Titus, Qualcomm’s Paul Jacobs and more.
It’s not all doom and gloom. Some channel executives believe the Brexit will bring fresh business opportunities.
Seb James, Dixons Carphone CEO, had this to say: “It feels strange and unsettling following the vote but we are the same, our company is the same, and our job is the same: making people happy.
“And we swept the board at the customer experience awards. Brexit or no Brexit, we will be just fine.
“Our view is that, as the strongest player in our market and despite the volatility that is the inevitable consequence of such change, we expect to find opportunities for additional growth and further consolidate our position as the leader in the UK market.”
Kamal Hitari, founder of online retailer Hitari, agrees: “Uncertainty creates opportunities. In the short term, there is a small opportunity to increase export due to the currency dropping in value, but either way, it is very early to predict how this will play out.”
Nick Beer from Dynamode UK states: “General consumer computing and computing accessory sales will continue to flourish in their home market. Future trade deals will need to be worked out, post-Brexit, but I firmly believe the EU as a whole welcomes, and will continue to welcome, co-operation in our industry, once this dust has settled.”
Exertis, meanwhile, seems nonplussed. Its parent firm, DCC, believes the referendum to leave the EU will not have ‘any material direct impact’ on DCC’s business, as the group has relatively little cross-border trade.
“Presently almost 50 per cent of the group’s operating profits are generated outside of the UK, and so the group’s reported operating profit would benefit modestly from favourable translation should sterling remain at current values, or depreciate further,” DCC said in a statement.
“General consumer computing and accessory sales will continue to flourish in their home market.”
Nick Beer, Dynamode
Clive Murphy, managing director of Trojan, a company that provides multichannel etail sales and fulfilment, comments: “I feel it will be a bumpy road, but remain optimistic that even with uncertain and difficult times, there will be opportunities. It’s just about realising them.”
On the wider tech world, Tudor Aw, head of technology at KPMG UK, says: “The core attributes that make the UK tech sector so strong and attractive remain in place, including an amazing talent base that has a long track record of creativity such as Alan Turing’s first working computer to Tim Berners-Lee’s World Wide Web.
“Tech is a sector that will only increase in importance and works without borders. I therefore continue to see the UK tech sector as one that will not only withstand the immediate challenges of the referendum result, but one that will continue to grow.”
CyberPower agrees that its long-term future should be ‘unaffected’.
“I cannot imagine when the dust settles that the EU will want to limit trade with the UK considering how much trading was going on cross borders,” comments business development manager David Scott.
He adds: “We have not seen a decline in sales since the vote was cast, so I believe the fact some customers think the prices will go even higher is boosting sales after the referendum, and hopefully once the exchange rate rises again we can carry on as normal.”
IT SKILLS AND SPENDING
Canalys believes that the effect of the Brexit will lead to a cut of the UK’s IT spending forecast by ten per cent for the year.
The outlook for 2017 could be even worse, it reckons, with up to a 15 per cent decline as IT budgets are set lower on the prediction of a tough year ahead and ongoing uncertainty.
“Trade disruption, political instability, recession, stagflation, talent pool reduction and the collapse of the EU are all potential outcomes that need consideration,” says research analyst Claudio Stahnke. “The UK is taking a big gamble on its future. The unprecedented nature of the move to leave makes the true extent of the outcome an unknown. Though there are a number of different scenarios that could play out, what is certain is that we are only at the very start of defining the UK’s new relationship with the EU.”
Gartner, meanwhile, expects global IT spending to be flat in 2016, and expects an ‘erosion in business confidence’ following the Brexit.
“The brightest spot in the market could perhaps be an increase in average selling prices, with good sales of high-end gaming PCs and hybrid laptops fuelling this change,” the analyst says in a statement.
Elsewhere, there is still an IT skills gap in the UK, with a lack of talent available to fill certain IT roles. Some say this situation could get worse following the Brexit.
Gartner says that the long-term uncertainty in work status will make the UK ‘less attractive’ to potential new foreign workers.
“Retaining current non-UK staff and having less access to qualified new hires from abroad will impair UK IT departments,” Gartner says in a statement.
Ajay Sule from Frost & Sullivan adds: “By putting a brake on immigration, companies may struggle to find the people they need to drive their businesses forward. In addition, EU citizens working in the high-tech sector may feel their careers are best served elsewhere – there’s a real possibility that many will seek opportunities elsewhere in Europe.”
How will the Brexit affect tech retailers? Well, the British Retail Consortium and KPMG say that it’s ‘too early’ to assess any Brexit impact on retail sales, while some other experts say it won’t affect e-commerce in particular
Helen Dickinson, OBE and chief executive of the British Retail Consortium, states that: “Britain’s retailers remain open for business. The EU referendum vote has not changed their relentless pursuit of delivering for customers day in, day out or their investment in meeting the needs of fundamental changes in the way people shop, driven by digital and technology.
“Despite the fall in the pound, the time it takes for any input price increases to translate into higher shop prices will depend on a combination of factors including further changes in the pound, commodity prices and the challenge for retailers to move pricing given the intensity of competition. So, there won’t be any instant shocks as any changes would take time to feed through.”
David McCorquodale, head of retail at KPMG, adds: “While the ramifications from the Brexit vote may well affect consumer confidence, retailers will be hoping the long-promised heatwave and potential stay at home holidays will be enough to drive shoppers back to the high streets over the coming months ahead.
“With the referendum fallout still uncertain, retailers will need to make sure all channels are ready and resilient to cope with the impact of a Brexit.”