Britain’s vote to leave the European Union is already taking a toll on some small U.S. businesses, with canceled tour bookings in New York and U.K. retailers cutting back their orders from American suppliers.
The plunge in the pound against the U.S. dollar after the vote three weeks ago makes goods and services more expensive for those in the U.K., and means British tourists get less for their money while traveling elsewhere.
Many of the companies are trying to plot a course without clarity on exactly when or how a split may occur. Businesses with facilities in Britain wonder if they’ll have to establish a presence elsewhere. Others worry the broader European economy may weaken further, making investment in those countries a bad idea.
On Location Tours in New York, which specializes in outings to places where TV shows like “Sex and the City” and “Gossip Girl” were shot, usually gets nearly a third of its business from Britons visiting the U.S. Owner Georgette Blau says that in the three weeks since the vote, she’s had a nearly 20 percent drop in overall revenue from the same time a year ago; travelers said they were canceling trips or were cutting spending once they arrived.
With the pound still near three-decade lows against the U.S. dollar, Blau is worried about the coming months — particularly the winter, when On Location gets a lot of business from British school groups.
“My concern is that as wonderful as New York is, people do have other choices,” Blau says. She’s responding by advertising more within the U.S., and investing in marketing to places like China where some U.S. TV programs are popular.
Rachel Winard has seen several U.K. business customers pare back their orders for her Soapwalla skin care products.
“I get the sense that retailers are concerned about the fluctuating exchange rate and are being particularly conservative,” says Winard, who gets half her business from Europe, including the 10 percent of revenue that comes from the U.K. She’s concerned not only about orders, but that products might languish on store shelves if consumers get skittish about spending.
Other companies are proceeding with caution because of the uncertainty. First, it’s not known exactly when the British government under incoming Prime Minister Theresa May will act on the vote to withdraw from the EU. May has indicated she will not start the process until next year, but may face pressure to move up the timetable. Any split would also take years to accomplish and involve negotiations such as trade agreements. Another question: Will other EU countries seek to withdraw?
As required for it to do business in the EU, computer networking company Kollective Technology has a physical presence in an EU country — in Britain, company president Todd Johnson says. But if Britain withdraws, he says, the Sunnyvale, California-based company will have to replicate its British operation in another country to keep complying. The cost could run to $1 million, a huge investment for business with $20 million in annual revenue.
More immediately, Johnson is seeing prospective customers taking their time before committing to big purchases because of the vote.
“They’re all trying to figure out what this means to them,” Johnson says.
At Accusoft, which sells software to process documents, the concern is about what established customers will do when their contracts come up for renewal, CEO Jack Berlin says. The pound’s weakness, which may be long-lasting, makes Tampa, Florida-based Accusoft’s services more expensive in Britain.
“Something we would expect to close in 90 or 100 days I suspect would drag into next year as they figure out what their business prospects look like,” he says.
Kevin Klock faces that uncertainty plus possible currency issues as he decides when, or whether, to market the beverage Sparkling Ice outside Britain. Sparkling Ice maker Talking Rain Beverage Co., based in Preston, Washington, has been produced in Northern Ireland and shipped to the rest of the United Kingdom. Also unclear is whether tariffs would be imposed if he ships from Britain to the Continent. Currently, goods flow between EU members without tariffs.
“The U.K. was our first step and we probably will slow our expansion into Europe as a result of this,” says Klock, the CEO of Talking Rain.
The best approach for U.S. companies who do business with Europe is watchful waiting while prospecting for business elsewhere, says Peter Cohan, a lecturer at Babson College whose expertise includes business strategy.
“Have a ‘Keep Calm and Carry On’ mindset. For businesses, nothing immediately is changing,” Cohan says.
But if British and EU businesses do cut purchases with U.S. companies, smaller enterprises may have advantages over larger ones in the fallout, says Stephen Chipman, CEO of Radius, a Boston-based consulting company.
“You can move a little faster, be more nimble, more flexible, more agile to take mitigating steps,” Chipman says. For example, it’s easier for a small business owner without a corporate hierarchy to lower prices to retain good customers.
“A larger business may be bureaucratic and not able to move the battleships quite so quickly,” he says.
American companies may even benefit because the U.S. economy and currency appear more stable than Britain’s and those of the rest of Europe. Businesses wondering which countries will be in the EU a few years from now, and what the value of European currencies will be, may decide to make deals in the U.S., says Dale “Mac” McIntosh, owner of Custom Powder Systems, a maker of manufacturing equipment for pharmaceutical and other products in Springfield, Missouri.
“I think today and for the next six months, the uncertainty will be very positive for us as we compete with people in the European Union,” he says.