Neil Saunders provides a valuable service by culling newspapers on a daily basis for retail stories and putting them up on his twitter feed. This saves time for me and also provides a good snapshot of retail sentiment (He does other things with GlobalData Retail which are also worth checking out). The gallery image above is some of the stories of Saturday 9th October, and tells a story of the retail problems that are crashing upon us.
According to the Prime Minister the queues at the petrol stations, the shortages on the shelves, the lack of turkeys, the Christmas stockpiling apparently already underway, the inflation worries and the likely slaughter of tens of thousands of healthy pigs but not for food, is all part of the Brexit master plan he conceived in 2015. Or as many commentators have it, Johnson is “economically illiterate”.
He thus swung wildly between saying on last Wednesday it is all big business’ fault, they are on their own and they need to sort themselves out, to then appointing, less than 48 hours later on Friday, the ex-boss of the largest of large food retailers to the Government, to save Christmas by sorting supply chains out.
In the Brexit referendum Johnson notoriously said ‘F**k business’ and this is about the only thing he is living up to, even as it damages and offends high profile Brexit supporters such as the bosses of Next and Iceland. Lord Wolfson is in despair at what’s going on and to come, beset by labour shortages, high pay rises and supply chain woes. Next will manage through in all likelihood, as they have done so well for so long. Others though will not be so fortunate and as Richard Walker pointed out smaller firms and those unable to afford to invest in a capital-labour swap are going to go out of business if the trends continue. Tuesday’s employment figures showed job vacancies at a record high, with the largest increases in vacancies in the retail sector.
It is clear that Brexit isn’t delivering, especially when it comes to supply chains. This was entirely predictable (others were clearer than I on this, but my piece from June 2016 has stood the test of time, and in hindsight was even understated), but has been made much worse by the pig-headed refusal of the Government to plan a transition. In supply chain terms Brexit is a highly damaging disruption, but it could have been implemented smoothly and the worst effects managed. Same end, but different way of getting there and without massive collateral damage on the journey.
Business has been told by Government to stop whingeing and pay up. If nothing changes then the Government needs to realise that the whingeing hasn’t actually started yet. The lack of workers in supply chains (drivers and warehouses and increasingly shops) will not be solved by raising wages – the labour force is not there, and it will take time to get skills or add technology (and as above, smaller businesses will be unable to afford some of this). The same is true in other sectors from hospitality, to care, to the NHS (and I don’t see the Government stepping in to force the NHS to pay higher wages, nor for teachers and so on).
Add that the need to use storage to hedge for transport flow issues, at a time when there is a warehouse shortage and increased difficulties in product flows across newly created borders. Almost six years on from the referendum debate the mythical technology solution to cross border trade remains just that, mythical, like so much else of the Government’s approach to supply chains and business. Forty years of creating and refining flow based systems has been broken at quite some cost, and with a complete lack of understanding (or worse, care) of the consequences.
There is no doubt Covid has exacerbated some of this, but Covid is not the root cause of the issues. There are global supply chain problems but the lesson this tells us should be not ‘look everywhere’s bad’ but ‘when an integrated system gets disrupted, problems reverberate for some time’. And Covid was that disruption. In the end though the system will sort itself out, except for countries which have put themselves outside their biggest markets and decided to build barriers. Yes, thanks to the UK Government for the Brexit dividend (not).
The cherry on top of all this for businesses is the rising cost of fuel/energy. This will add a lot more to retailer operating and supply chain costs. And the UK has no real storage facilities, in contrast to Germany or France etc. These will feed through to consumers, already hit by increased taxes and their own increasing costs. Pay rises are unlikely to be able to keep pace, and we know where that ends. Higher wages for higher skills (so does that mean HGV drivers are unskilled? Or explain why the Government wants to remove skills from the HGV test and increase drivers hours?) becomes pretty meaningless if inflation outpaces the wage increases.
Across the board Brexit has raised the cost and complexity of supply chains. Other factors have certainly added to that. Resolving the broken supply chains will be expensive. Price rises are inevitable and there will be increased inflation (as already been idenitifed by the Bank of England).
Brexit, accelerated by Covid, has broken our supply chains and we will pay the costs of this. No amount of high wages/high skills rhetoric (did I hear that once in the Brexit campaign?) will cover this up. The lack of understanding at the heart of Government of supply chains is coming home to roost, and beyond Dover.
The Prime Minister now says it is not his nor the Government’s role to solve business problems. But it is his role and responsibility to create the conditions for the country to prosper. He, like our supply chains, is struggling to deliver.