Things are about to get even tougher for struggling luxury retailers.
The U.K. vote to exit the European Union adds yet another wave of uncertainty to sales and profits at the high end, which have already taken a beating due to a stronger dollar, slowing economic growth and a shift toward spending on experiences versus goods.
The British pound tumbled to a 30-year-low Friday, making high-end goods outside of the region more costly. Global financial markets likewise dove, putting pressure on the portfolios of wealthy shoppers, whose net worth is more directly tied to market fluctuations.
And with the euro simultaneously moving lower, the Brexit is likely to create ripples on luxury brands' U.S. flagship stores, which depend on tourists for a chunk of their sales. Foreign shoppers have already cut back on spending in the U.S. because of the stronger dollar.
Retailers based in the U.K. will face complexities and higher costs due to increased trade barriers, as they will have to pay import duties and taxes on items that are made in other European countries, said Hana Ben-Shabat, a partner in the retail and consumer practice of A.T. Kearney
"Companies will have to 'release' goods from customs, which extends lead times and delivery to stores," Ben-Shabat said. "For local designers in the U.K., there will be a cost increase for raw materials sourced in the EU."