[FREE ebook] Impact of Brexit on ecommerce: will you sink or swim?
The UK has begun its journey of separating itself from the European Union. The country is due to leave the EU at 11 pm GMT on 29th March 2019. The transition period between 29th March 2019 and 31st December 2020 will allow businesses to prepare and adapt to post-Brexit reality.
Now that Article 50 has been triggered: what comes next for ecommerce?
It’d be great if there was a Brexit crystal ball predicting currency fluctuations and legislation changes. Obviously… there’s no such thing so online retailers must prepare.
Currency fluctuations, customs regulations, (un)expected changes in legislation and other uncertainties will bring international sales opportunities and challenges. To a big extent, it’s up to merchants whether Brexit will be their ecommerce blessing or curse.
In this guidebook, we’ll show you how to prepare your online store for one of the biggest events in contemporary history.
Brexit: the basics
Brexit is a short term for Britain exiting the EU. The news on Friday morning 24th June 2016 sent shockwaves across the globe. Britain officially announced that its people wanted out of the EU. According to the Guardian, the value of the pound plummeted on the currency markets, and the investment markets recorded the biggest one-day fall of close to 10%.
The economic earthquake on June 24th unleashed a torrent tidal wave of anxiety and panic. However, the Brexit process won’t happen overnight and will take years to complete.
Steps to UK leaving the European Union
Brexit supporters are of the opinion that the EU’s size, bureaucracy and immigration policy have diminished Britain’s influence and the sense of national identity. Pro-European Brits, in turn, believe that leaving the EU will be detrimental to the UK economy. One of the early visible results is the fluctuations in the pound’s value caused by the uncertain future of Britain.
According to the warning issued by the International Monetary Fund, “major challenges for both the United Kingdom and the rest of Europe” can be expected.
The UK economy and its growth could be affected for as many as the next 15 years. The country can expect a reduced income caused by the increases in trade costs with the EU. The effects of less skilled immigration, lower FDI (foreign direct investment) and the dynamic outcomes of reduced trade can be expected, too.
The Brexit news also attracted the attention of international online sellers, putting them on the alert. But…
There’s really no need for panic. Brexit doesn’t mean the end of international ecommerce. In fact, it may be just the beginning.
Lingering uncertainty: can we really expect post-Brexit doom & gloom?
Brexit is currently one of the biggest sources of instability in financial markets. No wonder that retailers express a very strong desire for clarity, not knowing the ultimate impact on their businesses. What they need is more better preparation and confidence in planning and investing.
The key unresolved questions involve:
- the single market
- the free movement of goods
- customs arrangements.
Probably the worst thing about Brexit is not Brexit itself, but the uncertainty it brings. Unfortunately, we’ve yet to find out the actual impact of this event. As the process of Brexit unfolds, we must look closely at the political and economic changes.
Interestingly, the general feeling of uncertainty seems to make things look worse than they actually are or can become. The UK is one of the top marketplaces and has a strong economy. Despite the Brexit-related volatility, the country should stay strong long-term. Some people are also of the opinion that Brexit will happen … never. If it does, however, whether hard or soft, the process will take years so … we should keep calm and carry on, too.
The value of the pound may have plummeted but remember … Sterling is a strong currency and it should eventually stabilize.
Of course, it’s impossible to predict anything for sure, but there’s enough evidence to keep calm & carry on, also for (cross-border) ecommerce.
- The UK is a gateway to Europe and its strong international links will keep it in the trade loop.
- The UK is the largest ecommerce market in Europe and the ecommerce success story.
- The UK shopper really likes spending money online, compared to other countries.
We’re speculating a lot, but the fact is … we don’t know if there’s really anything to worry about. At the moment we need to focus on solutions. At the end of the day, we have to move forward successfully, whatever the new political and economic reality will be like.
Ecommerce after the Brexit referendum
After the Brexit referendum, some UK sellers importing goods from abroad saw much higher costs. Many ecommerce sites use US software, e.g. a hosting provider or a platform. When prices are charged in dollars, there’s an instant increase in costs when the pound is weak. For instance, London tech startups whose mostly new tech is built on Amazon Web Services, billed in dollars, noticed increased costs caused by the falling pound.
On the other hand, the drop in the pound against other currencies grew the number of orders for many UK retailers. As worldwide online buyers were shopping for deals, the weak pound made the UK a good-value-for-money shopping destination. This increase in sales happened in line with the growing trend for cross-border ecommerce.
According to the IMRG MetaPack UK Delivery Index, UK retailers experienced a rise in international orders. Retail orders in the UK rose by 11.3% in January 2017 and 32% of all orders were heading out of the UK. Of those orders, 59% were to EU countries.
Some retailers immediately became much more profitable, selling at the same euro/dollar price, with a higher margin. The currency situation also provided the opportunity to stay more competitive by lowering euro/dollar prices according to the change in the pound.
However, it’s dangerous to assume that now everybody will be buying from British sellers because of the pound situation.
We may expect some challenges on many levels, e.g. with regard to distribution, packaging and a shortage of fulfilment and warehouse staff. If European migrant workers, especially those from Eastern Europe, are prevented from working in the UK, there may be a manpower crisis. The UK would be forced to increase wages to encourage applicants from the new labour stock. This would be good news for British workers, but the increased cost of labour is likely to affect the supply chain.
However, let’s not forget that these immediate effects may have little to do with long-term results. The worldwide economic shocks may come to the surface when Brexit is actual reality.
The bottom line is…
The wait and see approach can result in uncertainty and loss of trust in the power of the British economy.
Should UK ecommerce sellers worry about post-Brexit legislation?
The UK is one of the leaders in the digital economy and the most mature ecommerce market in Europe. The European Union is its biggest trading partner and a lot of UK-based companies are strongly linked to the EU and influenced by its legislation.
When Britain is no longer part of the single market, distance-selling regulations, such as duties and taxes, will be less straightforward. Among expected changes are the VAT regulations in the case of UK retailers selling to the EU. However, such changes may not necessarily be a bad thing for them. For example, it may be easier to sell goods outside of continental Europe or Britain will be allowed to impose its own tariffs on imports.
Further, the UK’s own competition law can be adjusted when the country officially leaves the EU. Brands may have more opportunities when it comes to testing new products or promotions, giving consumers more choice. Additionally, if there’s no competition from the EU, UK retailers may be able to raise prices. They may also be able to purchase from the cheapest markets.
Maybe the future has it that Britain will become very competitive in Europe. On the other hand, maybe geoblocking laws will stop Britain from being a low-cost provider from the non-EU area, forcing it to focus its efforts elsewhere. Time will tell.
Brexit, the EU and cross-border trade across the globe
It’s too soon to say how Brexit will impact trade within the EU and outside of it. It’s still up in the air as to when the UK will leave the EU and what trade deals will be introduced at that point.
On the one hand, the long-term impact may be pretty destabilising for worldwide commerce. According to a survey conducted by Global-E, more than 50% of UK retailers expressed their fears of cross-border trading becoming more complex when the country leaves the EU.
On the other hand, we can expect new opportunities for cross-border trading, which will benefit sellers and buyers alike. Due to the currency fluctuations after the Brexit referendum, small manufacturers achieved considerable success in terms of becoming competitive abroad, which has a more global impact. SMEs are a big part of the UK economy and its future growth.
According to research conducted by the Centre for Economics and Business Research (CEBR), SMEs will contribute GBP 241bn to the UK economy by 2025.
Based on a report by the British Chamber of Commerce (BCC), UK exporters were feeling more and more confident about Britain leaving the EU. Around 16% more manufacturers reported increased exports.
According to a survey of more than 100 marketplace sellers, predominantly located in Britain with 40% having a turnover of over one million pounds per annum, there’s enthusiasm and interest in trading abroad despite the volatile times.
The list of countries that Brexit-affected sellers are considering for expansion includes mostly overseas markets with similar characteristics that have Amazon and eBay national sites. The list includes the USA, Canada, Australia, New Zealand, China and emerging markets in Asia and South America.
If you’re an international online seller, you may have sold your products to places with which your country has no trade agreements at all. So you know that such cases may be more complex, but definitely possible. No trade agreement doesn’t mean no trade.
What’s driving hope when Brexit sends chills running down the spines of many entrepreneurs?
The rise of global trade and ecommerce-oriented online technology.
Don’t leave your online store to chance
Make hay while the sun shines, but have an umbrella ready for rainy days.
Some UK retailers have benefited from the Brexit situation and the decreased Sterling value. However, although the current currency fluctuations may be favourable in some contexts, this may be misleading in terms of long-term economic success.
As much of the future is unknown, don’t leave things to chance. Take action NOW. Now is the time to prepare for what’s ahead in the coming months or years.
The weak Sterling and cross-border bargain-hunting provide a good opportunity to turn deal hunters into repeat customers. Thus, collect data on your new customers, migrate them to the localized versions of your website, engage them and give them reasons other than price to come back and shop with you.
Use your own numbers and trade data, but consider external sources, too. For example, a marketplace analytics service, such as Terapeak, will give you insight into the performance of certain goods, e.g. prices over time, conversion rates and volumes on marketplaces like eBay and Amazon. So you can check, for instance, how many units of a given product are sold on eBay Canada, what’s the average price and how it fluctuates.
Since nobody is off the hook, you must be prepared for different scenarios. The let’s-wait-and-see approach can result in lost profits and long-term business failure.
It’s better for online retailers to act than react: look for solutions
In the wake of Brexit, some sellers are considering moving their companies to Ireland to keep them inside the single market. Others, due to currency fluctuations, are thinking of implementing an international payments policy to improve profitability.
There isn’t one foolproof way. Neither is there a guarantee that the solution that appears the best now will be so 5 years down the line. But you must have options and different alternatives. In colloquial terms, you shouldn’t put all your eggs in one basket.
Luckily, the world of opportunity for ecommerce sellers is … the whole world.
So why not expand the country portfolio where you sell your products? For example, India and China offer you access to a total possible customer base of over two billion people.
Grow your business outside the UK and Europe and make your online store global. Considering different markets is your chance to multiply your revenue, but it can also be your business first aid kit in case of an emergency.
For instance, if one market stops being profitable for any reason at any point, you can investigate the situation in other countries to put in more effort in a region where forecasts look more promising.
Prepare your ecommerce business, technology and processes to make the most of new opportunities available on international markets.
Online store owners and marketplace sellers should definitely consider an international expansion of their ecommerce business. Automated ecommerce solutions enable them to instantly expand worldwide and boost their international online store and marketplace sales.
In a nutshell: this is Britain
The post-imperial UK has always felt different from continental Europe. Pounds, stones, inches… The imperial remnants still make Great Britain somewhat different from the continent. All the same, in terms of the European and world economy, Britain is a big player, unlikely to jump off the trade train.
Commerce and collaboration between the UK, the EU and the rest of the world will continue. It may start off with a period of disruption and a degree of chaos within the market, but it will work long-term.
Ecommerce sellers should stay aware of potential opportunities and challenges after Britain waves goodbye to Europe. Can we really predict what will happen? At the moment it’s more guesswork than a reliable business prediction.
Harnessing the current volatility and taking a proactive approach to plans for the future is the most sensible option for growth-minded online store owners. If you own an online shop … don’t let it go, but make it grow!
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