How Brexit Could Upend Retail in the UK

With Brexit negotiations in turmoil and an end-of-March deadline looming for the UK to leave the European Union, many retailers remain unsure about how to prepare for the United Kingdom being its own international trade entity, and not a part of the European Union.

The numbers show that a significant number of retailers feel that they are not adequately prepared for such a change. One study reported by fashionunited.uk noted that only about two-thirds of retailers have assessed the changes that Brexit could have on their business, with a large portion remaining uncertain.

And that uncertainty, says retail analyst Chris Field, is hardly a surprise.  

“There was a survey recently by one of the management consultants that said 30 percent of businesses are not ready for UK Brexit, but how can you be ready for something that you’re not sure what impact it’s going to have?” asked Field, head of innovation at Retail Connections.

Clarity hardly seems imminent, with Prime Minister Theresa May this week asking Parliament for more time to negotiate a modified deal with the EU and with speculation swirling that a clear path won’t be visible until shortly before the March 29 deadline — or alternatively that the deadline will be pushed back.

Perhaps the best anyone can do is unravel just what it means to be a part of the European Union and thereby examine what it could mean not to be.

In the past, businesses in the UK have not had to worry about the dynamics of sharing resources with the EU as they have enjoyed the “four freedoms” – the freedom of movement of goods, the freedom of movement of workers, the freedom to provide services and the freedom of capital movement.

While these “freedoms” will not necessarily go away, they will become much more difficult to navigate. The changes Brexit will bring will be particularly painful for retailers who have not prepared their supply chains and sales channels.

 How will Brexit change supply chains?

 As a part of the European Union, companies in the United Kingdom have been able to import and export products throughout the EU without too much hassle. As the UK becomes its own trade entity, retail companies will have to be much more diligent in determining the most cost-effective way to get their products to the United Kingdom.

For instance, if a retailer is selling items in the United Kingdom that have been produced in full or in part in the European Union, they will likely be subject to new tariffs that have not yet been decided upon. As many retailers operate on slim margins already, this could be catastrophic to retailers who are not prepared for this increase in cost and are not able to pass these additional costs on to their customers.

Retailers also will need to consider how trade regulations might affect shipments of goods and products they rely on for their businesses. Will there be delays at the border? Will transportation companies change their business models and decide not to contend with the new complications, meaning a need for alternative shipping arrangements?

 How could Brexit affect warehousing and distribution?

 Many large retailers and ecommerce companies rely heavily on optimised distribution networks in order to remain competitive in the marketplace. Just-in-time deliveries can be a key to holding down inventory costs and reducing the risk of being stuck with overstock of seasonal and other items. Will new border regulations disrupt the ability to schedule and execute precision deliveries?

Many times, efficiencies gained in the warehousing and distribution processes rely on low-cost labour that may come from other countries within the European Union.

After the UK is no longer in the EU, companies may have more difficulty finding manual labourers at costs that allow them to remain competitive. As many of these workers may have come from European countries in the past without too much difficulty moving around the EU, Brexit will make this process much more difficult.

 What About Ecommerce Sellers?

Ecommerce companies selling throughout the UK and the EU will have to pay special attention to how Brexit may affect them in the coming months. Not only will their supply chains change, but also their sales methods may need to adapt. While retailers in the United Kingdom only need to worry about getting products into the UK and into their retail customers hands, ecommerce companies selling across borders need to think about distribution as well.

Up to now, ecommerce companies headquartered in the United Kingdom could sell into Europe without too much trouble. Companies based in other European countries like France, Germany or Spain, could likewise sell into the UK relatively easily. With Brexit, this all could change. While it is currently unknown exactly how these laws will change things, they most likely will only make things more difficult.

As a part of the EU, companies in the UK have been able to ship products to end consumers across European borders with relative ease. As the UK becomes its own trade entity, companies will now need to worry about additional tariffs and possibly increased delivery times, as it is likely more product inspections will be taking place at the border.

Even if the United Kingdom leaves the European Union as planned, companies based in the UK and selling into Europe will still need to comply with all safety regulations the European Union has in place, which will add another layer of compliance into the mix.

How Could Brexit Change Consumer Behaviour?

The people most affected by Brexit and the change in laws it may bring with it are consumers. In fact, there already are signs that the uncertainty is weighing on consumer spending. David Buckingham, CEO of Ecrebo, a UK-based point-of-sale data company, said the specter of Brexit has added to general economic unease.

“You’ve got this thing called Brexit hanging over the country, which is still at this stage, unknown, what the outcome will be and what the impacts will be,” Buckingham said recently. “I think those kinds of things are really hurting consumer confidence and as a result, people are choosing to keep some of their money in their pockets.”

And when Brexit becomes real, the effects will also become more real — effects likely to include additional layers of cost for retailers and ecommerce companies doing business throughout Europe.

While retailers and ecommerce companies may find ways to counteract these costs, many are likely to be passed on to end customers. This could cause consumers to shop around more, looking for cheaper prices. It might have them thinking twice about spending on premium brands that have now become more expensive due to Brexit. Or it might lead to consumers reining in spending altogether.

How Should Retailers and ecommerce Companies Get Prepared?

While every company’s situation is unique, they should all take a deep dive into what Brexit could mean for them. This may be difficult as all the effects of Brexit are not yet known, but looking at what this could mean for your supply chain in terms of importing/exporting as well as labour costs would be a good start.

If you are an ecommerce company selling across borders either into the United Kingdom or into the rest of Europe from the United Kingdom, it would be wise to start looking at how you may need to change your pricing in order to remain competitive in a post-Brexit world.

With so many unknowns it can be difficult to plan well for the changes that may affect your business as the UK disbands from its EU counterparts. Even so, it’s important to be as prepared as you can be in order to be able to navigate the uncertain road ahead.

Photo by iStock

Adam Barratt

Adam is a freelance writer based in the United Kingdom and Spain who focuses on tech, digital marketing, health & fitness and travel.

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