- Posted on 21 June 2016
Online retailers need to consider the impact of a Brexit
Online retailers are one of Britain’s success stories. According to the Centre for Retail Research, the UK leads Europe when it comes to online sales, with £52.25 billion in sales in 2015 – projected to climb to over £60 billion this year.
The UK e-commerce sector is also strongly international. Exports account for about a fifth of online sales in the UK, and the EU accounts for about half of those. According to the Global Retail E-mpire report, that’s well ahead of comparable figures in other leading European markets, such as France or Germany. Put simply, the UK is a European leader for online retail. But for how long?
To date, online retail has shrugged off concern over a potential Brexit following the referendum this month. While BDO’s High Street Tracker shows UK retail suffering from a “Financial Winter”, online sales actually grew 18.5% in May. That is, at least in part, underpinned by the UK’s membership of the EU.
A beneficial union
Most obviously, the EU provides access to a single market of 500 million consumers. And, despite the difficulties of recent years, it is a market that’s growing. As emerging markets such as China, Russia and Brazil slow and even contract, it’s increasingly important to retain access to the EU market.
Moreover, the EU provides UK consumer brands with something vital to compete online: scale. Businesses that succeed in the new digital economy are those that can grow fast. Scale means cost-efficiencies and increased consumer confidence. In providing unrestricted access to the single market, the EU allows UK businesses to compete with those in the US and China that naturally have much larger domestic customer bases.
The EU also gives British online businesses access to talent. Local knowledge is vital for businesses looking to build their brand in countries across the continent, but so, too, are efficiency and a coordinated strategy. Many businesses opt for the best of both worlds: individual country heads – usually natives of the markets they oversee – but based centrally in London. The free movement of people makes it both possible, and pretty painless to operate this way.
A vote for Brexit poses significant risks to all these benefits.
First, exiting the EU seems likely to add costs. In the absence of a trade agreement, retailers face the prospect of tariffs on goods sold to European buyers. They also face potential extra charge for delivery if goods have to pass through customs. More immediately, the weakening pound that some predict would make British exports cheaper, but, having to source goods from Asia and elsewhere would also make stock more expensive for retailers.
Even with low or no tariffs, Brexit could still result in extra costs that will make a significant difference to price-sensitive shoppers. Soft barriers, such as longer delivery times, could also have a significant impact on sales.
Much, of course, is said of EU regulation, but again the changes would not necessarily benefit online businesses. The EU’s Digital Single Market legislation currently being consulting on, for example, is primarily designed to make cross-border e-commerce easier.
Finally, the role on London as a centre for pan-European online business will also be at risk if the free movement of people is called into question, and businesses are forced to restructure to continue to operate.
Of course, none of this is certain, and it’s true that many online retailers enjoy a strong export business outside the EU. When it comes to UK consumers buying online, their top markets are actually the US, Australia and China, according to IMRG, the UK industry association for ecommerce. We’ve also seen from places such as California that immigration policies can be designed to support and encourage innovative businesses. So it’s quite possible Britain’s online business could still thrive.
Nevertheless, the risks of a vote for Brexit must be considered and addressed, and the evidence to date suggests many haven’t begun. That’s not necessarily a problem – the Lisbon Treaty stipulates a two-year negotiation for a member state that does decide to leave, so change won’t happen overnight. If the vote on June 23rd is for Leave, though, the next couple of years are certainly going to be busy.
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