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How should retailers prepare for Brexit?

By Will Gillingham

It’s time to give a good hard look at the elephant in the room: Brexit. Ever since Britain announced their intended departure from the EU in 2016, the British economy has exhibited whirlwind-like tendencies. The valuation of sterling has plummeted and rallied, the cross-border movement of goods has become a riddle which nobody can solve, and, only yesterday (26th February), Theresa May yielded to her peers in allowing a vote to occur which, if agreed, would delay Brexit beyond March.

It’s a mess of titanic proportions.

However, a month out from the intended deadline, a tentative path can be trodden into the future of retail post-Brexit: we have some clarity around a few things and can hazard an educated guess at others. So, how is Brexit expected to affect retail? Is there anything retailers should be prepared for? We approached our community of experts for their insight.

An Overview of the B-Word

Brexit is currently slated to occur on 29th March (although recent developments in allowing MPs to vote on an extension could push the deadline to June). Whatever the case, when we reach the deadline, dependent upon the deal (or lack of) that is struck with the EU, Britain will begin the process of extricating from the various ties and connections we currently have with the EU.

In the context of retail, Padraig Slattery, VP Retail, SafeCharge, claims that retailers should ‘keep calm and prepare for Brexit’.

He continues: ‘Some of the changes that might result from Brexit include: changes to the validity of licenses, certificates, and authorisations; new conditions for data transfers; a potential change in exchange rates; changes in the application of taxes; disruption to supply chains and distribution models; and changes in the regulation of financial services.

‘Anyhow, preparing against all possible eventualities would require the commitment of resources that are beyond the reach of many retailers, particularly those that are small and medium-sized. That is why it is recommended that retailers focus on the factors that they can control and subscribe to updates from public service organisations.’

It is likely that Brexit will cause retailers to alter the way they do things in some capacity. It may be a tiny change in a clause to reflect our detachment from the EU, or it may prove to be wider-reaching.

But how is Brexit expected to affect the sales themselves?

London

The Likely Effect of Brexit on Sales

IMRG have a direct view of the sales and activity of hundreds of online retailers in the UK. From this broad perspective, trends can be identified amongst both retailers and customers, and an estimation for the future can be given. This includes estimating the outcome of Brexit on retail.

On this front, Andy Mulcahy, Strategy and Insight Director, IMRG, says retail is likely to be more protected from the effects of Brexit than other sectors.

Mulcahy: ‘The macroeconomic climate – which must be linked to some extent to the looming Brexit deadline – does seem to have exerted some influence over online retail sales growth in recent months. That said, retail should be more protected against possible impacts than other sectors; while the housing and car markets are having a tough time, it does mean people are making less of the really high-expenditure purchases which, in theory, leaves more for the lower-cost, more regular purchases made on retail sites.

‘A caveat to that would be if things get very volatile over the next few months, with currency fluctuations hiking up prices of certain products. But one factor that can never be overlooked in retail is the impact of the British weather. February has been exceptionally warm, which may be stimulating sales activity for fashion retailers selling new season products. If we get favourable weather in March / April, that may be a significant driver of sales growth – if it’s cold and our exit from the EU doesn’t go well, it could be a very tough time.’

And so, in stereotypical fashion, Britain is badgering on about its weather. And yet its effect on retail is seismic.

However, while sales themselves are governed by the sun, one aspect of the purchase journey which is more likely to feel Britain’s departure from the EU is delivery.

Shopping mall

Brexit’s Effect on Delivery

Before we talk about delivery, let’s nip the cross-border conversation in the bud: chatter about imports and non-EU deals; tariffs and WTO law; excessive wait times in ports; delivery lorries backed up for miles; deals made with shipping companies which have no ships: all of this has swept through the media, and continues to do so. Cross-border issues are the crux of Brexit, and nobody seems certain on how these will be resolved. We certainly aren’t.

However, our domestic delivery services are unlikely to change too much. What could change is the workforce.

The free movement of EU nationals into Britain (and vice versa) is currently being debated as part of Brexit negotiations. Further to this, Theresa May has dismissed a proposal to guarantee the rights of EU nationals after Brexit (although she is currently facing a major governmental rebellion on the case).

According to the BBC, 19% of European migrants take jobs in warehousing, primarily for retailers.

As emphasised by Paul Durkin, Director of Home and eFulfilment, Wincanton, if these workers’ rights aren’t guaranteed, there could be an upheaval in the warehousing sector.

Durkin: ‘Labour availability is a pressing concern. Decision-makers need to look at what percentage of their workforce are EU nationals and consider what impact potential reductions in this total could have long-term. Does your business have plans to recruit, retain and incentivise this vital resource? If the answer to any of the above is ‘no’, it’s essential to give it more thought.

‘The whole logistics industry depends on people; people in warehouses, people on the road making deliveries and people behind the scenes planning operations. Ensuring your own talent pool - and the resources of businesses you work with - is not negatively affected is important.’

There is one more area where we already have a good deal of clarity around how things will be affected post-Brexit: environmental legislation.

Shipyard at dawn

Environmental Legislation

The UK’s legislation on the environment is currently dictated by the EU, and, as such, it’s an area which Britain will have more control of in a post-Brexit scenario, and one which will have a direct impact on retailers.

Comply Direct specialise in the area and have undertaken a substantial amount of inquiry into how legislation is likely to change post-Brexit. They’ve discovered that the British government are unwilling to stray too far from EU legislation.

Martin Hyde, Policy Researcher, Comply Direct: ‘As a Producer Compliance Scheme we have been getting many questions from our members, including retailers, on environmental legislation post-Brexit. The environmental compliance market is set for quite a few changes over the next 5 years, primarily on the back of the Resources and Waste Strategy.

‘The Producer Responsibility (Packaging Waste) Regulations are currently undergoing a process of review and a consultation on reforming the UK packaging producer responsibility system was launched on 18 February 2019. The current UK government is keen to at least meet minimum environmental standards that Europe adopt going forward.

‘It appears certain that the UK will implement the key aspects of future EU legislation such as the EU Circular Economy Package and this will aid the ease of future trade with EU member states. Packaging waste in the UK is currently shaped by EU legislation, and we are convinced the UK government will ensure this ongoing parity still stands post-Brexit.

‘In terms of the Waste Electrical and Electronic Equipment (WEEE) Regulations, the future of this legislation is not yet firmly set in stone. The UK has vowed to follow the EU’s movements on eco-design. There is also the possibility that some form of modulation will begin to apply for WEEE; meaning that there may be a shift from “pay for what you replace” towards a system more in line with the “polluter pays” system.’

The environment has been identified as a top trend for customers and retailers this year, and it’s recommended that retailers keep an eye on how this legislation changes post-Brexit.

Pier and lake

In Summary

Brexit is, provisionally, just around the corner, and will have some effect on retail. It’s effect on retail sales shouldn’t be as substantial as its effect on other sectors, but it will certainly affect the transport of goods. Warehousing workforces, in particular, may see an upheaval, and how imports and exports will work in a post-Brexit world is anyone’s guess.

Environmental legislation, on the other hand, shouldn’t change too much. The EU has a strong environmental ethic, and UK ministers are keen to stick close to it.

Whatever the case, 2019 is the year of Brexit. Whatever Brexit has in store for Britain, it won’t be long until we know for sure. Probably.

Will Gillingham, Content Executive, IMRG

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