Brexit Concerns Weigh on UK Jewelers

RAPAPORT... The weak pound and uncertainty over the UK's departure fromthe European Union are making it hardfor British jewelers to plan their business activities, dealers said.The currency has declined about 13% since Britain's June2016 vote to withdraw from the bloc in a process known as Brexit. That hasraised costs for wholesalers and forced retailers to increase consumer prices,exhibitors warned this week at the International Jewellery London (IJL) show. "We'renot pulling many gemstones out of the ground in the UK, and not mining a lot ofprecious metals, so by default we're an international industry," saidSimon Forrester, the CEO of the UK's National Association of Jewellers. "It's increasingly difficultfor people to make a business plan due to currency fluctuations." Britain has also yet to finalize the terms of its departurefrom the EU, which is due to go into effect on March 29. The resultantuncertainty led to UK business optimism falling to a five-month low in August,according to the Purchasing Managers' Index, a market survey. The industry is therefore still in the lurch about keyissues such as potential trade tariffs, rules of value-added tax, and whetherthe UK will escape the EU's ban on retailers charging credit-card fees. "Uncertaintybreeds conservatism," Forrester noted. "Brexit is both a threat and anopportunity for existing business models. I'm seeing people putting offbusiness decisions based on the lack of clarity." The pound's fall means customers must spend more in sterlingterms for products that previously cost less, as standard jewelry rates are indollars, explained Dax Humberstone, director of Antwerp Diamonds, a supplierbased in the northern English town of Burnley. "We can expect an improvement if we have a positive resultfrom Brexit which results in a stronger pound," Humberstone added. While Brexit has created the insecurity, the downward trendin the UK's precious-metal market has been going on for years, pointed out DougHenry, CEO and assay master at AnchorCert Group, which operates Assay OfficeBirmingham. Hallmarking atthe UK's four main metal-testing operations declined 2.6% year on year to 4.8million items during the first seven months of 2018, according to data thatAssay Office Birmingham compiles."There's more choice, which is why precious metalsspecifically are declining," Henry said. "High-end watch sales are still verystrong, and costume-jewelry sales have improved." Ways to sellUK consumer appetite for jewelry is weak as people areworried about Brexit and don't know how much their pounds will be worth in a fewmonths, dealers at IJL reported. Traffic at the show was mixed, reflecting theoutlook, while Forevermark, De Beers' diamond retail label, was the mostnotable absentee. (Neither IJL nor Forevermark had responded to RapaportNews' requests for comment at press time.) Fire and Ice, a brand of Canadian diamonds occupying theprominent booth that Forevermark had in previous fairs, noted strong interestfor its products because it displayed relatively inexpensive items. "If we'd come in only showing only the high-end ormid-to-high-end price points, I don't think they'd be so open to continuing tolook at our goods," said Gail Golberg, director of sales and purchasing atOntario-based Beverly Hills Jewellers, which owns Fire and Ice. UK-based exhibitors recognized the need to increase exports,thereby using the weaker pound to their advantage. While Britain doesn't havemany of its own raw materials, it does have a national reputation that manycountries would envy, noted Fei Liu, a Chinese-born designer based in theMidlands city of Birmingham. "You just have to find a way [to be successful]," insistedLiu, who said he had urged his team at Fei Liu Fine Jewellery to focus on shippingoverseas. "Sterling is so attractive, and everybody loves Britishness - let'sgo that way. What we're exporting is not only material - we're exporting theBritish mentality." British perseveranceThe British are good at "making the best out of the worst,"Fei noted. His company's results were negative in the first quarter, but wereup 7% for the eight months to August following resolute efforts to work withretailers, he said. "In this economic downturn, the industry is workingextremely hard to encourage retailers to continually be what the British aregood at - innovative, cosmopolitan," Liu observed. "Even after Brexit, I havehuge confidence about the country and the people. In general, whether north orsouth, everybody is cautious, but we can't be distracted by the negativefeeling." Dealers mainly feared the idea of a "no-deal" Brexit, underwhich trade with the EU would likely be subject to World Trade Organization(WTO) rules. That would mean paying the same tariffs the EU charges othernon-EU countries, and could result in traders having to obtain an exportdocument - known as a Carnet - when shipping goods to the EU for short periods.However, even that would not be the end of the world,according to Chris Sellors, owner of family-run C W Sellors Jewellers inAshbourne, a small town 40 miles north of Birmingham in the county ofDerbyshire. The key factor will still be people's willingness to do business, he said."I'm old enough to remember the difference before [the UKwas in] the EU," Sellors said. "We all had to do Carnets, even to go toIreland. The worst case is you go back to that." Meanwhile, the top levels of the domestic market - includingtourist spending - remain robust, even if British people overall feel they haveless money, traders said. "In high-end items, when someone comes in and buys from onecompany, that company, for that month, is doing very well," according to adiamond exhibitor from outside the UK who asked to remain anonymous. "You onlyneed to make a few sales. You're not selling sandwiches."Image: Aha-Soft/Shutterstock