Understandably, UK retailers, wholesalers and their global trading partners are spooked. The once-powerful pound has weakened drastically, plunging to a 31-year low against the US dollar last October and becoming one of the world’s worst-performing currencies. Spending by customers in Ireland, some of the EU’s biggest online shoppers, is now at a five-year low.
In January, Amazon warned its UK sellers to prepare for the worst-case scenario, a no-deal Brexit: “Be prepared that any units in a UK fulfilment centre might not be fulfilled cross-border to EU customers… Consider sending inventory to an EU fulfilment centre by March 17.” Six months later, things aren’t looking much brighter. As of this month, the pound sits at a 27-year low, its lowest since April 2017, amid fears of a “hard Brexit” where Britain will be forced to revert to WTO rules.
In the UK: Pounds Buy Less, Other Currencies More
But while a weak pound makes importing goods to the UK more expensive, it also boosts exports, which achieved a record high of £640 billion last financial year. In fact, many British goods are now cheaper, for both UK and European shoppers—and shoppers around the world. Those shopping in US dollars or Euros, for example, can expect to save about 15 percent on British goods, generally coming out ahead even with shipping charges and tariffs tacked on.
Faced with the uncertainty of Brexit, many UK retailers have slashed their prices to compensate for the falling value of the pound and declining consumer spending. A weaker pound has effectively given a price break to foreign tourists shopping the high street. And online sellers, blessed with the gift of agility, have made even more price cuts than brick-and-mortar stores, which are subject to fixed costs and therefore less able to respond to fluctuating conditions.
“Consumers want convenience and value, and the UK is way ahead of any other country in its penetration of online shopping,” says Maureen Hinton at GlobalData. Amazon UK, for one, offers great deals, particularly to customers shopping in foreign currencies. Amazon and eBay’s European sites and marketplaces like Poland’s Allegro and France’s Cdiscount and Fnac have also been huge revenue drivers for UK sellers.
What Will Cost Less (and More)
Among the best buys are digital products sold on UK websites. These include music, digital books, software, games and apps. Unlike physical items, which require some form of inventory or product movement as with drop shipping, these downloadable virtual goods are exempt from shipping and holding costs as well as import taxes and duties. Prices have on digital goods have fallen, and bargains abound on Amazon UK and Steam.
Clothing, shoes and furniture are expected to drop in price, a result of the government’s plans to eliminate tariffs on a variety of imported goods including items as diverse as jam, televisions, spoons, carpets, batteries, onions and peas, bringing the total value of tariff-free imports to 87 percent, compared to 80 percent before Brexit. Food prices as a whole are forecasted to go up, however. Currently, the UK imports about 30 percent of its food from the EU and 10 percent from the rest of the world.
Electronic hardware will also become more expensive, as very few electronics are made in Britain. HP and Dell have already raised prices in the UK 10 percent across the board in light of the weaker pound. Tariffs on meat, dairy, underpants and cars are expected to go up as well.
What to Expect When You’re Brexpecting
Prices that have fallen won’t stay low forever, particularly for British shoppers, as inflation and higher EU import taxes take hold. When the pound eventually stabilises and rebounds, prices will as well. This is true both online and off.
EU shoppers buying from UK sites can expect customs delays as goods are held hostage until duty and VAT are paid. How much will depend on what the item is (12 percent for clothing versus zero for books and tech gadgets) as well as its price. Goods worth over €22 will incur VAT of 23 percent while those over €150 will be subject to customs fees. The forecast is that everything will be about 35 percent dearer. A dress costing €250 on a UK website could end up costing more than €300 once taxes and charges are applied. Returns will be slow and impractical as well, and UK sellers will no longer be legally bound to EU rules protecting the consumer. And that’s if you can even order anything in the first place, given Amazon’s warnings that cross-border trade to Ireland and the rest of the EU may be temporarily suspended. The UK will effectively become a third country.
Hard Brexit, as its name implies, will be difficult for online sellers as well. Though shoppers are taking advantage of lower prices for now, a significant drop in business from the EU is expected over the longer term. That’s why multichannel and online sellers should look to expand their international strategy and do it now. Whether you currently sell on European marketplaces or you’re planning to establish a distribution channel outside the UK, to stay competitive and keep your margins high, you’ll want to create separate legal entities in the UK and EU, a win-win situation for both sellers and shoppers. But if your new company sells some of the same products as your original brand, transactions will duplicate data entry tasks for both.
Cin7 is the only inventory management software featuring native automation between multiple entities out of the box, saving you countless hours of admin, reducing errors and data redundancy, and making complex business processes easier to manage. You’ll be able to link two accounts and set rules to automatically create a sales order in one when you create a purchase order in the other. Competitors like SAP and NetSuite can custom-build this functionality, but lead times range from six months to a year—time you don’t have, with Brexit looming.
With Cin7, multi-entity management is as simple as plug-and-play. Native EDI, support for multiple currencies and a full suite of multichannel features make doing business abroad much easier. In these uncertain times, couldn’t we all do with less to worry about?