Deal or no deal - UK retailers best and worst outcomes post-brexit
What appears to be lost in the melodrama of Brexit hysteria is the need for the UK retailer to strategise for both the worst and best outcomes of the UK’s exit from the European Union. The sums at stake number into billions with the value of UK imports from both the EU and the rest of the world totalling £590.5 billion according the Office for National Statistics. In terms of the implications for the UK retail industry, the threat of the import tariff post-Brexit will give the majority of UK retailer’s significant reason to re-examine their supply chains and scrutinise their product portfolio.
Post Brexit, UK retailers who are reliant on imports will be forced into a retail landscape with challenges of ‘revolutionary’ proportions. The introduction of the import tariff in the absence of a free or fair trade deal with the EU will likely prompt many UK retailers to make drastic changes to their business operations and look for innovative ways to respond to changing consumer habits.
For some of the biggest UK food retailers, the imposition of an average 22% tariff in the absence of a trade deal with Brussels would mean their top selling consumables such as vegetables, berries and clothing could potentially lead to a drastic change in the average consumer’s perception of the term ‘essential goods.’
Once the UK is no longer under the parental guidance of the European Customs Union; it would be able to alter the tariffs on goods. Nonetheless, the World Trade Organisation (WTO) would insist that the UK did not discriminate between trade partners, unless a free trade agreement was in place or the aim was to give developing countries special access to the UK market. Being confronted with this condition by the WTO, the UK would have to impose tariffs on all of its trade partners which would include the EU. Compliance with the WTO’s rules would subsequently cause the price of imports into the UK to increase significantly.
Tariffs could be reduced or done away with, particularly for goods not normally produced in the UK, but in reality we are yet to see what the cost implications will then be for the British consumer. Movements in the exchange rate and trade tariff changes could quickly affect the cost of obtaining imported goods. The increased cost of procuring imported goods will naturally filter into the prices charged to the retail consumer and what may then occur is that domestic producers may, in turn, increase their prices in response to the price increase on imported goods. With all of this potential competition, it is the British consumer who will need to be the top priority when the UK retailer assesses their pricing strategy.
It would not be a surprise if some major UK retailers adopted a temporary measure post-Brexit of absorbing the increase in import charges in order to protect their market share from the likes of Amazon increasing its own market share. The twists and turns of tactical ‘retail poker’ amongst retailers could be endless once the UK exits the EU.
James Walton of IGD made an insightful comment on what we have come to take very much for granted in the pre-Brexit arena, he said that "when we go into a supermarket, restaurant or coffee shop, we're at the very centre of a huge web of food and drink trading relationships, with layers and layers of exchanges going on out of sight.” It remains to be seen as to whether the introduction of import tariffs and all that goes with it will revolutionise those trading relationships beyond our wildest imaginings.
The ‘Brexit Revolution’ could herald positive outcomes for the UK retailer as Britain could be better placed to enter into trade agreements with countries such as China and the United States, which have thus far been an elusive prospect for the EU. Nevertheless, the UK retailer will need to abandon any leanings towards short-termism and embrace the long-term by:
- Reviewing supply chains;
- Scrutinising and revising retail operating models;
- Considering new technology with the aim of increasing global connectivity;
- Assessing the need for additional human capital; and
- Applying for Authorised Economic Operator status which will allow for faster access to certain simplified customs procedures, and in certain cases can enable shipments to be ‘fast-tracked’ through some customs and safety and security procedures.
MHA MacIntyre Hudson would be happy to assist your retail business in optimising its post-Brexit retail strategy.