UK’s LUSH to up EU output on weak post-Brexit pound, exposing Mercantilist fallacy
LONDON, July 8 (Reuters) – Uncertainty caused by Britain’s vote to leave the EU is making LUSH, an English-based retailer of handmade cosmetics, look to continental Europe to protect its production, sales and multinational workforce.
Based on the south coast – an area that opted strongly in favour of Brexit in last month’s referendum – LUSH says a volatile pound since then has created "a living nightmare". Now the firm is giving European staff the opportunity to move to a new factory in the German city of Duesseldorf.
While the decision to build the second plant was taken last year, LUSH is relieved to have a foothold in a country that will remain in the European Union while politicians set about renegotiating Britain’s relationship with the bloc from scratch.
"Even before the vote, when we were asking the tough questions, nobody seemed to have answers of what Brexit would mean. There didn’t seem to be a plan," Hilary Jones, a director at LUSH, told Reuters.
"But the German factory may be a salvation for us. Now, we are really thanking our lucky stars that we did that."
Supporters of Brexit have argued that a steep fall in the pound since the June 23 referendum offers British manufacturers a golden opportunity to export more competitively.
But LUSH, which imports many of its raw materials, doesn’t see it that way. Duesseldorf will supply continental customers while the existing plant in the town of Poole – which voted 58.2 percent to leave the EU – will keep catering for a British market beset by uncertainty, although it will also export.
British consumer confidence suffered one of its biggest drops in 21 years, according to a survey published on Friday, and the country’s largest department store group John Lewis expressed concern over the pound’s fall.
Jones said no jobs in Britain would be under threat. But staff at the Poole plant – which has 1,400 workers of 38 nationalities – were being offered the chance to fill vacancies in the Duesseldorf factory.
Duesseldorf aims to supply most mainland European markets by the end of the 2015/16 financial year.
"We can now offer them jobs in Germany within the euro zone. We will certainly be moving some production. We were always planning to move European production there, but now we could make it much bigger than we had ever intended, if Brexit means we have to do that," Jones said.
The group reported profit before tax of 24.5 million pounds ($31.78 million) in 2015. Jones said that while it was sticking to forecasts of a 19 percent production rise for the moment, that target is under review every day, and what used to be monthly board meetings now happen "at least once a week".
During the referendum campaign, the pro-Brexit side argued that leaving would allow Britain to control numbers of EU workers, especially from poorer eastern members states, coming to the country. The vote has left those already in Britain unsure of their future status.
Jones said Poole hadn’t been large enough to supply enough local workers for the plant there, and she paid tribute to the foreign employees. "Those economic migrants have really helped us grow our British business," he said.
Volatility in the foreign exchange markets is also affecting the business. LUSH imports ingredients from all over the world to Britain for production, and while it already sells products to markets such as Japan and the United States, the ructions in sterling increase the need for it to sell more outside the UK.
"We’re bringing ingredients in, and we’re shipping finished goods out," Jones said. "We’re exposed on every level, from each direction. So it’s a bit of a living nightmare at the moment."
Jones says that as a British firm, it will always be in the country. But having seen a drop in sales on a like-for-like basis on the day after the vote, LUSH believes it can already feel consumer wariness "through the tills".
"We don’t feel like we’re about to abandon Britain," she said, but added: "We’re on a rollercoaster, and we’re certainly on it with the rest of the country, but luckily for us we’ve also got footholds elsewhere."
"God help those companies that haven’t."