Impact of Brexit on Retail – Thematic Research
Brexit is found significantly impacting consumers and retailers operating in the UK and the EU in a myriad of ways, including trade tariffs, the movement of goods, changes in the labor market, and general repercussions relating to consumer attitudes and buying behavior across the region. While these changes pose some initial hurdles in day-to-day business, in long run, Brexit will also provide fresh opportunities for retailers to consider and explore. While the trade deal signed with the EU in December 2020 will greatly lessen the impact of Britain’s exit from the single market, UK retailers and consumers will still experience changes in the retail landscape in 2021 and beyond. The last-minute deal avoided the prospect of tariffs on all imports and exports, which would have considerably pushed up prices of some items sourced from abroad, and particularly foods that are not suitable for production in the UK climate.
With tariff-free trade largely secured via the trade deal, items such as French cheeses and Romanian manufactured clothing will now remain available to UK consumers, and with only negligible price increases, if any at all. However, there are still a lot of unknowns around Brexit’s impact on the retail landscape, with a lot of moving parts. While Brexit has made the movement of goods through established supply chains more challenging, slow, complex, and costly for retailers in the region, UK-based retailers with multi-country supply chains will be more affected compared to retailers with simpler UK-specific supply chains. However, these changes in supply chains on the back of Brexit will ultimately lead to efficiency gains in the long run.
What are the main trends in retail that are emerging as a result of Brexit?
The main trends in retail that are emerging as a result of Brexit are retails trends, consumer trends and regulatory trends.
Navigating the UK’s exit from an inter-connected and highly unified free market is proving difficult for retailers especially in the short-term as they are unable to move goods from one place to another as smoothly as before. Importing into the UK is now more expensive and takes longer due to custom duties, VAT and freight charges, and additional paperwork. Retailers supply chains face difficulties due to different and sometimes arbitrary standards of export from the UK to EU countries, especially when it comes to definitions of items made in the UK versus those processed in the country and re-exported. It has led retailers to consider moving operations for EU countries to outside of the UK to avoid new taxes and tariffs. This includes obtaining a new business address, opening warehouses and fulfilment centers, and shifting routes for supply chains. Bonded warehouses allow companies to import items into the UK and store them without having to immediately pay duties on them.
The end of the transitionary period of the EU-UK deal brings with it a series of intended and unintended ramifications. One significant change under the new deal is that all EU retailers selling to the UK must now pay VAT, which implies shifting costs either to consumers or squeezing profit margins. Consumers will have to pay the extra amount to the delivery companies in order to receive their parcels across EU countries. Brexit will have a significant impact on duty-free spending as the new regulations bring a series of implications. The UK’s exit from the Eurozone implies the end of free movement and flexible work permits for consumers between the regions
Changes in duty-free limits is a regulatory norm impacting the retail through Brexit. Following Brexit, the UK government ended tax-free sales in airports for product categories such as electronics and clothing for passengers travelling to non-EU countries. As part of these changes, international visitors are no longer able to claim VAT refunds in British shops. Travelers may require a visa or permit to stay and work for a period longer than 90 days. Irish citizens will be able to enter to work or study in the UK without a visa. Under the UK-EU Trade and Cooperation Agreement (TCA), the UK and EU agreed to unprecedented 100% tariff liberalization. This means there will be no tariffs or quotas on the movement of goods between the UK and the EU.
What is the impact of Brexit on various retail sectors?
Brexit has caused disruption to food imports into the UK due to cumbersome checks and additional paperwork which have caused delays at crowded ports like Dublin, with some supermarkets experiencing unavailability of certain items in Northern Ireland. To give domestic retailers time to understand requirements and authorities to set up infrastructure for handling inspections of food products at ports, the UK unilaterally extended the grace period for non-tariff barriers such as border checks on goods coming from the European countries to April 2021.
The apparel industry in the UK is facing troubles from two fronts including COVID-19 and Brexit. While the decrease in non-essential purchases amid the COVID-19 crisis has affected retailer revenues significantly, Brexit is causing sourcing, supply chain, and labor issues. Brexit-led ‘rules of origin’ procedures to qualify for zero tariff during export affect apparel retailers.
The beauty industry was less affected by Brexit than other sectors as there weren’t substantial changes in standards and practices to be followed for making cosmetics, on either side. For UK retailers exporting to the EU, nothing much needs to be altered in the actual product as they already adhered to compliances for products. The primary change lies in the requirement for paperwork and product labeling.
Moving electrical goods requires time and planning as they have longer lead times in transit. Electrical and electronics retailers have had to make inventory changes to maintain stock levels post 1 January 2021. Customers in Northern Ireland have especially felt the brunt of Brexit due to the difference in rules for maintaining a ‘right to repair’.
Home retailers in the UK are mainly adjusting to the rising costs of freight and having to change their supply chain systems to factor in delays in deliveries, due to new checks as goods move to Northern Ireland. Retailers like Kingfisher, Dunelm, John Lewis, M&S, and Habitat stopped delivering to Northern Ireland, at least temporarily.
Which are few of the retail companies that have adapted to the Brexit?
Asos, Dixons Carphone, Morrisons, H&M, Tesco, The John Lewis Partnership, JD Sports are few of the retail companies that have adapted to the Brexit.
Market report scope
|Retail companies||Asos, Dixons Carphone, Morrisons, H&M, Tesco, The John Lewis Partnership and JD Sports|
- The outcome of Brexit will have a varied effect on different parts of the retail market. Inflation will drive up food prices and increase the value of the food market, particularly in categories such as dairy, meat, vegetables and fruit.
- As consumers dedicate greater spend to food and grocery, together with falling consumer confidence, non-essential non-food categories such as furniture, homewares and electricals will suffer as volumes fall.
Reasons to Buy
- Learn how macroeconomic fluctuations will affect the retail market in different Brexit scenarios, better preparing your business to cope with pressures in 2019 and 2020
- Explore GlobalData’s quarterly forecasts to the end of 2020 in the food and non-food retail markets, so you can see how the two will interact and to what extend inflation will offset falling volumes in total retail
- Delve into the hot issues around Brexit, including immigration, ports, borders and the Irish backstop, enabling you to view the bigger picture of how trade will be impacted by changes post-Brexit
- Read detailed analysis of individual retail markets, so you can alter sales mixes to minimize expected negative impact
- View historic and current consumer sentiment around key Brexit topics such as personal finances and retail spend, giving you a greater view of how consumers will behave as the UK approaches March 2019.
The John Lewis Partnership
Marks & Spencer
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Asos, Dixons Carphone, Morrisons, H&M, Tesco, The John Lewis Partnership and 9JD Sports are few of the retail companies that have adapted to the Brexit.
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