UK retailers shipped more ecommerce parcels to customers in Europe than ever before during 2020. But some are now questioning whether selling to European Union (EU) member states is still worthwhile now that new barriers have been introduced to the way that ecommerce retailers sell across borders.
The latest IMRG/Global-e Cross Border Index, published earlier this week, suggests that cross-border ecommerce sales grew by 57% in 2020, compared to the previous year, for the 270 retailers that trade on the Global-e cross-border platform. Across the peak trading period, which this year marked not only the run-up to Christmas but also the final months of the UK’s membership of the EU Single Market, sales were 42% up on the same time last year. That’s part of a wider trend that has seen UK ecommerce sales grow by 46% in 2020, according to ONS figures out today, although overall retail sales - across all channels – fell by 1.9%, in volume.
The two trends go hand-in-hand, says Global-e Europe chief executive Neil Kuschel, who suggests that as shoppers buy more online, they are buying more goods from overseas sellers.
But the year of growing international trade ended in the new EU/UK Trade and Cooperation Agreement that does introduce new barriers to trade, despite its zero tariff, zero quota headline.
Retailers are finding that for the first time they must deal with the VAT rules of the different EU markets, as well as issues from customs codes, rules of origin and in the case of those selling animal-based products, extra phytosanitary checks.
That means, at a practical level, that the cost of European trade is rising. Asos anticipates £15m in extra costs in its current financial year as it pays tariffs to meet the country of origin rules that now affect British retailers when they sell goods into Europe that originated outside the UK. Superdry anticipates extra costs and administration. Despite having ensured that its inventory management and stock intake processes were up to speed before December 31, the fashion retailer says its Brexit internal working group will still need some time to get to grips with the full implications.
“Superdry is a global business with corporate and operational capability both in the UK and mainland Europe, which means that we are well-equipped to deal with the challenges of Brexit as we can service EU customers from within the EU and to as a UK-only organisation,” it said in its half-year results statement, published this week. “However, though this diversified distribution centre network has allowed us to mitigate many of the potential costs, there are now additional considerations and frictional costs of relocating inventory once it has been received into the business.”
End customers, both in the UK and the EU, are reporting surprise customs charges after buying from websites they may not even have realised were now on the other side of the new trading arrangements, while retailers are finding doing business overseas is now adding time and cost to their trade. This is proving a challenge for ecommerce traders of all sizes.
Some have taken the decision to stop delivering abroad at all. Leading UK retailer John Lewis ended its international delivery business before Christmas, saying that its strategy was now to focus on the UK market, though it did not mention Brexit specifically. Department store Debenhams, currently in the process of winding its business, has turned off its Republic of Ireland website because the added complexity, while fashion retailer Jigsaw says it is no longer shipping to the EU. In the other direction, a number of specialist European retailers have also said they will no longer ship to the UK. For others, this is a temporary measure. Upmarket grocer Fortnum & Mason is among the retailers that has suspended deliveries to the EU while it puts new processes in place.
Others, however, say they have seen no disruption to their businesses following the deal. Next, which already used bonded warehouses to delay tariff payment until goods are ready to be sold, has said that having prepared for the changes it is not now seeing any problems. “We have not experienced any disruption as a result of Brexit and all our new systems required for Brexit have been implemented and are now operational,” it said in a Christmas trading statement published in earlier this month. “We do not anticipate that Brexit will have a material impact on our ability to import and export stock in the year ahead.”
Neil Kuschel of Global-e argues that to miss out on European sales is to miss an opportunity. Changes to EU rules have made sales more complicated, with new VAT (on goods costing from €22) and customs tariffs (on goods costing from €150) now required, customs clearance fees of between £2.50 and £16, and increased carrier charges. But, he says, the potential remains huge. “More people are now buying online than before, and British goods are still highly desirable around the world - they have a reputation for quality, for trust, and people around the world believe that if they order from a British brand, they are going to get what they ordered," he says.
He says that the British brands that have prepared and internationalised the challenges of the Brexit paperwork and customs are not seeing any change either in the flow or the sale of goods. “What these brands have done,” he says, “is take the complexities of VAT, carrier and clearance fees and they’ve incorporated into the product price, sending as delivery duty paid, so the consumer anywhere in Europe sees the same experience. They’re paying a bit more in the product price but that apart it’s the same experience.”
And, says Kuschel, selling into Europe is not now particularly more complicated than selling elsewhere in the world, such as the US or Canada. “The brands that are doing it right are keeping their customer happy, gaining the sale, and I think gaining sales from disgruntled customers when their competitors aren’t doing it properly,” he says. "Some brands will retain loyal customers and others will lose them.”
At the bottom line, retailers and brands must now choose whether to keep selling to Europe or not, given the extra complexities and costs that are now in place. Ultimately the choice is a strategic one – and for each retailer will reflect whether the revenues available from selling to Europe outweigh the costs and complexity of doing so.