The realities of Brexit to our small business
November 12, 2018
I want to talk about knives, but as a knife business that mostly imports our knives from Japan we can't put off the topic of Brexit as it is causing us some massive uncertainties.
Sorry to go all "politics" on you for a minute but with Brexit going the way it is we feel the need to discus some of the issues we are experiencing; how it has already effected us and how it will continue to do so regardless of the unknown end outcome.
Brexit is possibly the most decisive thing I have known during my lifetime. The effects of it are amazing as much as they are damaging. I don't really care to tackle or know which way you personally might have voted but I did want to share our experiences as a small business of the "Brexit effect" so far and how it is changing our business right now and will seemingly continue to do so.
When the Brexit referendum result was announced our business was instantly effected. The value of the pound sank compared to the Japanese Yen we lost 20% of our buying power over-night.
The Dollar got expensive so our American and Chinese suppliers prices effectively went up too. We stuck this out for some months in the hope it would bounce back but eventually we had to sadly pass these costs onto our customers and increase our prices as a result.
Exports to the EU before the forced price increase doubled as our EU friends made the most of their discount and drained our stock levels down. An odd silver lining as replacing the stock was going to cost us more money.
After the price increases all our sales cooled across the board. Joy. It was and still is an interesting time to be trading.
Selling regardless should be seen as a good thing but we have an issue. We import 90% of our knives and supporting stock, they are all hand-made and in short supply. Selling all our stock off at 20% less than we should doesn't really help us stay in business.
Sadly when I occasionally grumble about this I sometimes get it thrown back at me with the line "well you should be buying UK knives anyway and supporting British businesses!". There are many things wrong with this line of thinking and I thought it worth pointing some out:
- We are a Japanese knife specialist, people come to us to buy Japanese knives. We can't get those from within the UK, the clue is kind of in the name.
- The steel to make the knives comes from...Japan. The Hitachi factory make the bulk of the type of steels used to make the knives. The raw incredients are made...in Japan. So even UK makers have to import their steel.
- Sheffield steel doesn't really exist anymore, its long gone and can't compete with the performance of the Japanese steels anyway. It was great back in its day but technology moves on and Japan are the masters of steel these days. Japan make the best knife steels in the world, simple as that. Even the knife makers in Sheffield get their steel from them or China.
- There is a demand for Japanese knives, why shouldn't we supply that demand?
- We do support UK knife suppliers where we can, but we struggle with supply and costs. They tend to be smaller and priced to sell direct and not via a specialist supplier like ourselves. So there is a demand for UK knives too, but the market is smaller and the prices are higher due to cost of materials and scale.
We live in a global world, the smart phone in your pocket might be designed in California but it's made in China, connected to a network in the UK and calling your mum on holiday in Cyprus. Although I support home grown talent and products we don't have to make everything here and it's not feasible to do so.
You can't for instance commercially grow lemons in this country so you have to ship them in, no amount of green houses is going to change that before March next year.
Our company sells what some would see as a luxury item, we might not be seen as essential to the day to day running of the UK. Some hearts won't bleed because we can't sell our high end knives, but this is a successful country. We want to be able to buy the things we want and desire. Brexit was about making the country better, I didn't see anything about limiting luxury nice to haves on the side of any buses.
By selling our products to customers who desire them I get to pay my bills which in turn lets me support local businesses (my roofer is getting a big chunk of my savings this month for instance). This is how a global economy works.
The issue shouldn't be with what I sell or if you yourself would want it. Our business going under shouldn't simply be seen as collateral damage in the scramble to get to the sunlit uplands of Brexit.
Currently we are less than 9 months away from...well...we don't know what. The pound dropped again by 11% this week to an 11 month low all thanks to Liam Fox saying a "No Deal" is likely, all in time for me to be paying for our Christmas stock. Thanks for that Mr International Trade secretary.
The EU has just signed a Free Trade Agreement with Japan (several years in the making) just in time for us to leave and have to try to negotiate our own (should be the easiest in history I'm told by the same Mr Fox).
We should of course be making the most of the Free Trade Agreement while we can and stock up now. Sadly again our Japanese blacksmiths can only make so many (that's part of the appeal of them, they aren't mass produced) and they can't get us additional stock in time. We won't get to benefit from the new FTA before March it seems and after then we potentially won't have any agreements for trade in place.
Post March 2019 we don't even know if we will be able to import any knives at all. If we have a No Deal then I'm lead to believe we can't import anything until someone sorts it all out (no doubt after some leadership elections and a general election or two).
Doubtless there will be lots of additional paper work and yet more costs we will either have to swallow or pass on. I'm not a verse to some more paper work if required although I can't lie that I'd rather trade via...erm...a free trade agreement rather than increase my work load needlessly. Who would want to make more work for themselves?
The trouble is we aren't hearing a thing about what importing might look like, or exports for that matter. How are our couriers going to manage to get trucks full of parcels over the borders to our EU customers? They can't tell me as they don't know either. Sales to the EU make up 22% of our business, losing that is going to hurt. How can we run a business with uncertainties like this?
These are all issues we will have to deal with as the steam roller of Brexit sadly goes on. I'll feel better having got out in the public some of the issues that we are a small business are facing. Its not just Rolls Royce and Air Bus who are having to make plans and facing some tough choices about the complete unknown future that is "Brexit". Small businesses are getting effected right now, you might just not have noticed yet.
Regardless of which way you voted, this is a reality for us of being in business in Brexit Britain right now. There is no way to plan, no way to mitigate the damage already being done or know whats coming up. This is not project fear but what we call real life, sadly.