Today marks the last day that the UK will be a member of the European Union, and yet it’s still not clear what Brexit will mean for retailers long-term. But here’s what we do know.
The transition period
The transition period following the UK’s departure from the EU starts at 11pm tonight. In practice, the regulations that cover trade for retailers selling cross-border into the EU will stay the same as they are today since the UK will remain a member of the single market and customs union until the end of December 2020.
Helen Dickinson, chief executive of the British Retail Consortium, said today: “Even though the UK is leaving the EU, consumers can rest assured that they will still find the same products at the same great prices, both online and in stores, throughout the 2020 transition period.”
In emails sent out this week to retailers who have registered for information, HMRC advises retailers to use this period to get an EORI number and to look into whether they might employ a customs specialist to file their customs declarations for them following the end of the transition period.
International delivery specialist ParcelHero says there is very little information for exporters, importers and people planning to send a parcel to the EU after today – despite the £100m advertising campaign launched to advise retailers around a possible no-deal Brexit at the end of October. That was averted when agreement was reached.
ParcelHero head of consumer research David Jinks said: “With a hard Brexit at least shelved until the end of the year, companies and individuals should be aware almost all of the no-deal advice they had been reading does not apply.
“After January 31, instead of launching into a new regime of customs invoices and tariff codes, there will be no immediate changes. Businesses and individuals will carry on sending items and receiving them from the EU just as they do today. A year-long transition period will follow until December 2020. We are keeping our essential international courier services guide constantly updated to cover all changes in regulations and prices.”
The new relationship
There is little clarity on what the new trading relationship with the EU will mean for the industry. Negotiations on that are currently timetabled to begin in March. UK chancellor Sajid Javid told the Financial Times earlier this month that the UK would be leaving the single market and the customs union [paywall]. “There will not be alignment, we will not be a rule taker, we will not be in the single market and we will not be in the customs union – and we will do this by the end of the year,” Javid told the FT. He said companies must adjust to the new reality. He added: “We’re taking about companies that have known since 2016 that we are leaving the EU. Admittedly, they didn’t know the exact terms.”
Last week he followed that up by telling business leaders at Davos, again reported by the FT [paywall] , that the government would only change rules if it “was in the interests of British business.”
And cabinet minister Michael Gove is reported to have said today that some friction in trade was inevitable. PoliticsHome reports that Gove told BBC Breakfast: “We want trade to be as frictionless as possible but the EU is clear that you can only have fully frictionless trade if you accept all their rules, you accept all their laws, you are subordinate to their judges, you are subordinate to their political structures.”
The BRC’s Dickinson says today that clarity is needed. “What happens after [the transition period] will depend on the numerous trade negotiations that the UK will now be engaging in, and we look forward to the opportunities that new trade deals may have for consumers around the world.
“Most important among all the Government’s negotiations is the need for a comprehensive trade deal with the European Union. We need a UK-EU deal which puts consumers first: one that continues zero-tariff trade and minimises any new barriers to trade. Without these, it will be the public who will face higher costs and reduced choice on the shelves. A pragmatic approach is essential if we are to ensure the NI protocol is workable from next January, without damaging trade between Northern Ireland and its neighbours to the East and South.”
ParcelHero’s Jinks said: “The Government wants ‘zero tariffs and zero quotas,’ but whether it can successfully negotiate this has yet to be determined. With the possibility that UK manufacturing and packaging regulations could diverge from EU regulations – perhaps returning to misguided plans for a new UKCA CE-safety mark replacement – all international shippers can do is hold their breath. But for now, at least, things remain unchanged.”
He added: “The exact conditions and regulations under which we will continue to trade with the EU will only be thrashed out during the course of the year. So, to be clear, there will be no new Customs’ checks, paperwork or tariffs on 1 February, for either businesses exporting goods or individuals wishing to send a parcel. It’s very much a case of ‘Keep calm and carry on,’ for now.”
So how can retailers respond?
While retailers still don’t know what Brexit will mean, it seems to have different and sometimes contradictory effects on their businesses so far. A drop in the value of sterling immediately following the referendum in 2016 made prices cheaper for those buying from overseas, giving a short-term boost to many retailers. However since then, uncertainty has dominated, especially during the last year when there were two potential dates on which the UK might have left the EU without a deal. Brexit uncertainty has been blamed for slowing retail sales, especially in March 2019 and again in October 2019.
But now that Brexit is a reality, many argue that it’s time to make the most of it – and important to stay open-minded.
Michael Patterson, managing director EMEA at retail analytics specialist DynamicAction, says it’s important that retailers keep an open mind on future opportunities.
“With recent reports of plummeting sales, evasive profit margins and numerous store closures, the escalating amount of concerns for retailers is staggering, even without Brexit,” he said. “In fact, the biggest threat to the industry is the ’analogue strategies’ of yesteryear, to which many retailers still feverishly cling. While these delivered past successes, innovation is needed in today’s digital data revolution. Brexit could therefore be the saving grace of the industry, encouraging retailers to adopt a new operating mindset that empowers more creative and customer-centric strategies to ultimately drive change for the better.”
Zack Sullivan, chief revenue officer, UK, at publishing company Future Publishing, said: “With consumer shopping habits changing at a rapid rate, we have already seen an extended period of uncertainty for retailers. As a global multi-platform media company with a large ecommerce offering, we’re mindful of the challenging retail environment, regardless of Brexit. However – the UK’s withdrawal from the EU has the potential to create more uncertainty, so it’s even more important to stay open minded and adapt to disruption, to remain relevant, modern, profitable and meet the new demands of consumers.
“Across the industry, there is now growing recognition of the value of selling to a highly-engaged audience in an environment where they are already invested in the idea, topic or product at hand, and who therefore have a much greater propensity to buy. The value of quality content surrounding a product or service is also hugely valuable, and we see video playing an important role in the future success of ecommerce, with high levels of user engagement. Regardless of the outcome of Brexit, retailers need to continue to innovate and respond the way consumers prefer to interact with a brand and make purchases, finding the right audiences, at the right time whilst helping consumers make the right buying decision.”