Now that the dust has settled and life is returning back to normal after the Brexit shockwave reverberated through the EU, how does the future look for e-retailers in the UK? In this blog post, I will share some relevant information for e-retailers on life after Brexit.
Retailing is an imperative part of Britain's economy, responsible for 11% of output and 4.5 mn jobs in shops, e-commerce, and physical distribution. Since retail sales account for approximately 30% of household consumer spending in the UK, and household spending accounts for approximately 60% of GDP, this makes retail a significant barometer of the direction of the broader economy.
Declined sales not as bad as expected
Contrary to fears from retailers, Post Brexit retail sales in the United Kingdom declined less than what markets had earlier anticipated. This seems to indicate a favorable post-Brexit position as consumers appear to have discarded the country's surprise decision to exit the European Union. Data released by the Office for National Statistics, according to Retail Gazette, showed UK’s retail sales fell 0.2 percent in August from July, a smaller decline than the 0.6 percent fall expected. Sales were 6.2% higher than a year earlier, and July's sales figures were revised higher from 1.4% to 1.9% - the best performance for the month in 14 years, according to The Globe and Mail. The ONS reported that all stores except textile, clothing and household goods saw an increase in volumes sold.
ING economist James Knightley said the figures offered further evidence that the UK was handling the short-term effects of the Brexit vote well. "Sterling's fall is likely to have boosted sales of high-end items by foreign tourists as watches and fashions become relatively cheaper for them when bought in the UK versus elsewhere," he added.
According to Marketwatch, shopping in the months ahead by locals and tourists alike will be critical to the health of the world's fifth-largest economy.
What does the future look like for e-Retailers?
The Centre for Retail Research thinks the future largely depends on what politicians, businesses, and consumers do after Brexit rather than what has been forecast. They think uncertainty will continue and that it will probably take a fair amount of time before the progress of the economy post-Brexit becomes transparent.
For retailers exporting their products, they will be pleased to know that they have a price advantage in EU markets against continental rivals due to the Sterling having fallen. Thanks to the decrease in sterling prices, UK-based online retailers will be able to sell a greater volume of goods abroad. Unfortunately, UK-based online retailers will in the future have to face EU controls over sales to EU countries, which will, no doubt, be detrimental to them. However, the weakening of the Sterling should help to overcome the new duties that will be imposed.
Some e-commerce companies may completely exit the UK. If they do they would then have to face UK restrictions on online sales from Europe. Larger e-commerce companies will create a base within the EU to sell into the EU to overcome the headaches of control issues. Luxembourg could be a worthy consideration since it has very low tax rates.
Furthermore, devaluation is excellent for tourism since this means visitors spend locally in shops. Tourism is worth around 135 bn to the UK, so this means much more revenue for local retailers as the UK remains an affordable destination for holiday-makers.
Retail Spending growth forecast
The Centre for Retail Research forecasts that “retail spending should grow this year by 1.6% (2016) and 1.4% in 2017. This is -0.3% percentage points lower than originally forecast for 2016 and 2017.” Consumer confidence and shopper spending have dropped somewhat post-Brexit. However, they go on to say that “retail spending has fluctuated considerably for the past three years and there is evidence that shoppers are spending less overall on clothing/footwear and spending more of their income on holidays, entertainment, restaurants, visits and events.” The CRR does not see this pattern changing which means that e-retailers may want to broaden their horizons by listing on more comparative shopping engines and marketplaces outside of the UK to take advantage of other consumer markets.
Assessment of Supply Chains
In theory, leaving the EU means that retailers can essentially buy in the cheapest markets. Tariffs that the UK imposes on imports may be lower or zero than the EU ones Analysis of what this new freedom could mean for retailers would be wise as they start creating new supply chains. As mentioned in our previous blog: How will Brexit affect e-Retailers in the UK, UK-based retailers would certainly be better off in the long-run by supporting Made in Britain. (Check out this handy website directory for British manufacturers, Make it British)
Rights of Establishment
For Online businesses wishing to continue doing business in the EU after Brexit, they will need to have a legal identity in at least one EU country, which could pose somewhat of a challenge.
Investigate Foreign consumer markets
Retail post-Brexit will have to be more streamlined and responsive to change if it is to survive and thrive. Retailers would be wise to diversify their retail efforts by selling in markets outside the UK. If you’re not yet selling in the US, it’s time to implement it! The US is the second-largest market taking 11% of the UK’s exports, totaling: $51B. (Source: OEC). For a presence in the EU, you don’t need to have a store in the UK to register on Amazon Germany, for example, and you can easily create data feeds for other international channels and marketplaces.
All in all the future for e-retailers post-Brexit doesn’t look quite as grim as expected. There are several challenges, of course, but these are in no way insurmountable. E-Retailers can take further action by developing ways to unlock value from the supply chain and listing with more channels and marketplaces outside the UK. Taking these steps will enable e-retailers to look forward to positive growth in their online businesses.
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By Amour Setter