UK retailers are well-versed in cross-currency sales, but Brexit will mean markets like Germany and France will become cross-border territories
The devaluing of the British Pound since the Brexit vote in June 2016 could be seen as a boon for UK retailers, in terms of selling online into the Eurozone, and other international markets. A weak pound makes desirable UK brands more affordable for non-UK customers, and while the UK remains part of the Customs Union, it’s open season for retailers.
But that is all going to change.
With the triggering of Article 50, the calling of a snap election, and the ongoing battle for the hearts and minds of the post-referendum public, a hard Brexit seems at this stage inevitable. The strong likelihood is that the UK will leave the Customs Union and the single market. Although the weakness of the pound will continue to attract international shoppers, the operational and technological challenges that will emerge in the next two years will challenge the number 1 driver of cross-border conversion – customer experience.
Membership of the single market provides a number of benefits. These include the free flow of goods and services, and a framework for trading with multiple (non EU) international markets. Outside of these structures, the complexities of selling across borders will become immediately apparent. Some of the key challenges we see emerging are:
UK retailers are well-versed in cross-currency sales, but exiting the EU will mean markets like Germany and France will become cross-border territories.
1. Selling from the UK to the EU
Selling into the EU will require goods to be exported from the UK and imported into the point of destination. This will add a complex and costly administrative layer, with duties and taxes becoming collectable, payable, and reclaimable across multiple touchpoints.
An alternative is to move goods under bond, allowing for a more streamlined, cash efficient and demand-driven supply chain. Goods can be imported into the UK, held under bond, and re-exported, with duties and taxes only becoming payable upon entry into the market of consumption.
Although many UK retailers currently sell into other international markets, once the single market is exited, so too will the UK leave the umbrella framework that the EU provides, in terms of trade agreements and simplified declaration processes. All of this will lead to additional complexity and cost for retailers.
2. Returns become problematic if not managed with the shopper in mind
Returns will continue to be a key driver of cross-border conversion. Post-Brexit, UK retailers will need to introduce a returns process that guarantees the optimal customer experience. Given the import/export requirements, in terms of paying and reclaiming duties (duty drawback), and the implications this has for the retailer’s ability to offer full refunds and a great customer journey, returns will emerge as a kingmaker in determining the success of selling from the UK into Europe.
Essentially there are two options:
- A return by the shopper to the UK (the least preferred method), as it presents a higher cost to the shopper, and there is a question over how the duties and taxes are refunded by the retailer.
- The preferred option would be in-country or in-region returns centres – this allows packages to accumulate and using a third party as an exporter of record, allows goods to be imported to the UK without paying duties and taxes again.
3. Inventory fulfilled from a central European location
This is an option open to high-volume UK retailers. Potentially holding and fulfilling inventory from a central EU location will bypass the complexities of establishing new export/import processes for the EU.
Conclusion:
There is no doubt that Brexit will be a costly administrative headache for UK retailers that wish to exploit the opportunity that a weak pound presents. However, for ESW, Brexit brings nothing new. Our technology and infrastructure deliver a seamless, localised shopping experience across international borders. Optimising the shopping journey in new markets and negotiating the kind of complexities Brexit presents is what we do.
