More than half of UK retailers believe they are – or will be – fully prepared for the end of the Brexit transition period – but almost a third have done nothing to prepare, a new study suggests.
It’s still not yet known if the UK, which left the European Union (EU) in January, will have a trade deal in place when the transition period between membership and non-membership comes to an end on January 1 2021. Leaving on a no-deal basis will mean that retailers who source supplies from the European Union or sell to customers in the EU will face customs tariffs as well as the new customs and VAT arrangements that will come into place at the same time whether a deal is reached or not. The study comes amid reports of bottlenecks at UK ports and shipping delays as PPE orders are imported – leading to delays in the supply chain, according to the latest PMI index from Markit.
What retailers expect from the end of the Brexit transition period
For the report, The final countdown: are retailers cutting it fine with their Brexit plans?, Arlington Research, working on behalf of PFS, questioned 150 decision makers with responsibility for ecommerce, omnichannel, supply chain or logistics at UK online and omnichannel retailers with more than 250 members of staff. Respondents were in categories including jewellery, cosmetics, apparel, fashion and consumer goods. It found that most (79%) believe they will be affected by the cross-border effects of Brexit, while 67% say it could cause an order backlog in the first quarter of 2021. More than half (56%) said these delays would come as a result of sending goods to EU customers from the UK, while 67% thought they would feel an impact when importing products from EU suppliers. Just over a third (34%) expect customer complaints to increase in the first quarter of 2021 as a result of Brexit.
How they have responded
As yet 29% have made no preparations for the end of the transition period, while 54% believe they are on track to be ready by January 1. Two-fifths (44%) say they have set up or are setting up an Economic Operators Registration and Identification (EORI) number to move goods between the EU and UK. Four in 10 (43%) say they are setting up Merchant of Record services for VAT management and reporting (43%), while 39% have put in place a new fraud management system.
More than a third (37%) have put new technology in place to increase supply chain efficiency, 36% are integrating inventory and order tracking software, and 33% are splitting their inventory between their existing UK and European facilities.
How retailers expect their customers to be affected
Two thirds (65%) say they expect delivery times to be longer than they are currently able to promise customers, while 55% say their contact centres don’t have the staff to handle the expected rise in customer complaints about delivery delays, and 55% say they won’t be able to handle a rise in returns that are not Christmas related. Four in 10 (40%) say they plan to notify customers in advance about delivery delays and reduced stock availability. Four in 10 (43%) stay they expect UK customers to respond by buying more from UK-based brands post-Brexit, and 35% are focused on building their UK customer base.
Joe Farrell, VP of international operations at PFS, said: “The retailers that are putting measures in place now, such as using multiple distribution points across the UK and the EU to get goods to customers on time, will survive and thrive post-Brexit. Retailers operating in the UK and Europe should also look to third-party fulfilment providers to help ready their supply chain. By reviewing where their customers are located and determining how inventory should be dispersed across the two regions, retailers improve their chances of getting products where they are most needed and maintaining vital customer satisfaction levels.”
Setting the context
The report comes as the latest PMI (purchasing managers index) from IHS Markit suggest that 32% are already seeing longer lead times from suppliers – against 2% that have reported an improvement. Bottlenecks at ports – thanks to a reported backlog of UK government PPE supplies – are said to mean companies are experiencing delays in supplies arriving and that they are paying more for raw materials and parts.
The Markit report says: “Worsening supplier performance was widely linked to shipping delays amid bottlenecks at UK ports. Rising freight costs and stretched supply chains contributed to the strongest rate of overall put price inflation for two years.”
John Roberts, chief executive of electricals pureplay AO.com, told The Guardian: “Felixstowe is a mess at the minute, so there is a lot of product being unloaded elsewhere and redirected by road, and also being redirected through Liverpool. Over a third of the product we receive is arriving at the wrong time. That might sound like a very simple thing but when you’re planning labour and bays on warehouses it adds a phenomenal amount of complexity and quite a bit of cost as well.”
Payments company Payoneer is currently advising retailers to get their stock plans in place before January, including separate stock pools for UK and EU fulfilment at Amazon – where relevant. It says traders should analyse their sales reports to see where sales are currently coming from and which is the best warehouse to ship from. Finally, it suggests retailers ensure that VAT registrations are in place in the EU countries that they sell to. It has produced a guide for retailers.
Payoneer’s guide to Brexit is here.
And here’s InternetRetailing’s guide for preparing for Brexit, deal or no deal. Part 1 covers EORI numbers and VAT, Part 2 covers customs, warehousing and logistics and Part 3 covers rules of origin and data.
