Retailers need to know – and soon – how the UK will be able to trade with Europe in the future. That’s the message from the British Retail Consortium in the wake of the delayed vote in the UK parliament on the Withdrawal Agreement from the European Union.
Helen Dickinson, chief executive of the BRC, said: “With just over three months to go until the UK leaves the EU, any delay to a future agreement is particularly concerning. Retailers urgently need certainty about what our future trading relationships with our neighbours on the continent will be.”
Prime Minister Theresa May pulled the vote, scheduled for tonight, after it became clear yesterday that the agreement would not win Parliament’s backing. Now she has gone back to the European Union to see if there are more concessions to be won on the agreement. The government now says that vote will be before January 21. In the meantime, uncertainty continues on how UK retailers will be able to sell to customers resident within the 27 remaining countries of the European Union, and buy from suppliers there, after March 29.
If no agreement is approved by Parliament then the UK will fall out on no deal terms, trading on World Trade Organisation terms – once those terms are set by the WTO for the UK as a sole nation. The other available option would be to stay in the European Union, following a ruling from the European Court of Justice that the UK could unilaterally revoke its Article 50 notice on membership of the EU, and stay a member on the same terms as at present.
Dickinson said: “A no-deal outcome would harm consumers, resulting in higher prices and less choice on the shelves. We call on parliament to urgently find a workable proposal to avoid a catastrophic no-deal Brexit. Time is running out.”
Planning for no deal
We reported earlier this year on what no deal would mean for UK retailers, based on Government guidelines issued over the summer. Earlier this month, HMRC updated that advice in letters to VAT-registered retailers suggesting that they needed to register to be an authorised economic operator (the link to do that is here) and that they should think about whether to hire an agent or use software to make customs declarations, and talk to their logistics provider about whether they could make safety and security declarations on their behalf. The advice applies to retailers in the UK and in Northern Ireland, although advice for those in Northern Ireland on their trade with the Republic of Ireland is set to be updated in due course.
How brands are preparing for a no-deal Brexit
Manufacturers have started to stockpile ahead of a potential no-deal Brexit. Nestle’s corporate communications director Ian Rayson was reported to have told the UK Parliament’s Business, Energy and Industrial Committee that the company had been stockpiling the products it needed to import into the UK. However there have also been reports that these stockpiles have now almost filled warehouse space, with space now running short.
John Perry managing director of supply chain and logistics consultancy Scala cites its own study that found 61% of grocery and FMCG (fast-moving consumer goods) decision makers were already stockpiling raw materials and finished goods, while others were reviewing their stocks with plans to build on them ahead of March 2019.
“Affected organisations should also consider applying to become an Authorised Economic Operator,” he said, “as it’s widely agreed that achieving AEO status is likely to be one of the most effective mitigating factors in any Brexit situation.”
How retailers are preparing for no-deal
A Retail Economics study, conducted with Squire Patton Boggs, found that as of mid-November (the survey of 26 anonymised retailers turning over more than £100bn between them, was carried out between November 10 and 21), more than a third of retailers said they had done little to no preparation or felt very underprepared for a hard Brexit. Most (52%) said they had done some preparation and only 15% said they were very prepared.
Almost three quarters (73%) had done some research into what tariffs would affect them under a World Trade Organisation framework, but the balance – 27% – had done none.
A third (33%) said they would face “significant additional cost” in the event of a no-deal outcome, and all said a no-deal would hit the cost of sourcing. Asked to put their concerns in order, respondents cited supply chain management and logistics issues (67%), labour availability and cost (56%) and tariff costs (48%).
Measures that they are taking included switching their supply chains to the uK, stockpiling, currency hedging and employing temporary workers.
Richard Lim, chief executive of Retail Economics, said the options were coming into sharp focus, two and a half years after the referendum. “Leaving the EU without a deal would give the UK total sovereignty over trade, borders and immigration but would mean the immediate emergence of new, expensive and disruptive checks and costs at the border for trade with the EU. It’s awfully concerning that over a third of retailers have done little to no preparation or feel very underprepared for a hard Brexit when this scenario could unfold early next year.
“Retailers identified disruption to supply chains, labour availability and tariff costs as their three biggest concerns of a no-deal, yet just two in five said that they had identified any way to mitigate against these additional costs.”
Matthew Lewis, partner and head of retail at Squire Patton Boggs, said: “We work closely with a large number of retailers across food, fashion and health and beauty and the survey results echo the same significant concerns we have been hearing from the industry. There have been numerous public predictions about likely disruption at UK ports and higher costs in the event of no deal, and the survey supports the view that a primary and urgent focus for retailers must be on their supply chain, and how to best manage this going forward.”