With the British referendum vote due on the 23rd June, it’s an uncertain time for British business in general but in particular for British retailers operating cross-border in multiple EU member countries. It is important that retailers continue long term plans to take advantage of rapid growth in cross-border e-commerce, whether Britain is in or out of the European Union.
The European Union is the UK’s biggest trading partner, member countries buy 44% of all the goods that Britain, and British businesses, sell abroad. As an EU Member State, the UK has full access to the Single Market. This market is made up of over 500 million customers and represents an economy over five times bigger than the UK’s. Being a member of the organisation arguably makes it easier and cheaper for UK companies to sell their products to the other 27 EU countries, according to HM Government.
Trading in overseas markets
Being part of the Digital Single Market, has been extremely valuable for British retailers to date as they have the same regulatory obligations to comply with in multiple markets. If the borders go up post referendum, confusion is likely among SME retailers about where and how they can legally trade with the EU. Our research shows that very few retail businesses are prepared for this, in fact, 60% of small to medium-sized retailers say they have made no plans whatsoever should Brexit go ahead.
However, if the UK does vote to leave, new trading agreements will most probably be set in place with the EU. This might make the sales process more complex for both the retailer and for cross-border shoppers based in EU countries. Retailers may face import duties and be liable to pay tax to EU countries as applies today to businesses in non EU member countries. As the EU is the largest export destination for cross-border exports from the UK, the introduction of customs duties and taxes plus the additional handling, which is far more complex than the current situation, could be off-putting to the consumer. Retailers must have contingency plans in place in order to maintain or get their cross-border business up and running in EU countries, without impacting the customer experience.
The status of customs duties, should the UK leave the EU, is totally dependent on what the government can negotiate on behalf of British business. If one trade agreement with the EU can be negotiated, customs duties would become consistent for British consumers buying products from any EU country. Retailers must be ready to react to this as legislation is agreed, however they must be wary of the impact this could have on the overall customer experience when shopping online if they are not currently providing an import duty calculation.
To head off the impact, retailers must provide clear and concise messaging to their customers that import duties will be covered in the total basket price, or to offer them the option to prepay duties and taxes, no matter what the legislative changes will be. Cross-border shoppers are well known to decrease conversion rates and increase return of goods if there are hidden surprises relating to import duty fees upon delivery. Working closely with a cross-border solution provider now, means that retailers can be ready to respond quickly as new legislation is applied.
The value of sterling
Earlier this year HSBC warned that a Brexit could wipe 20% off value of sterling – which will drastically impact import prices and in turn customer prices. Quite simply, the value of sterling post-Brexit is the biggest issue surrounding the referendum for British retailers.
The weaker pound could increase exports, with British businesses becoming more attractive and better value for money to customers across Europe, and beyond, than those locally. Consumers are opportunistic to value and having access to high quality British products at a lower price point will appeal to them. Therefore, buying from UK retailers will become more attractive for consumers based in EU countries, as the product will be cheaper in real terms as the value of sterling decreases. For example, retailers may be prepared to offset lower list prices and add more cost price items to what they’re selling internationally. Being reactive to consumer demand cross-border will be key to success whatever the outcome is on the 23rd June.
The EU remains a huge sales opportunity, with cross-border sales in Europe set to hit €40bn by 2018 according to Forrester. With the right preparation for both scenarios, technology and processes in place, retailers can see cross-border sales grow and conversion rates improve whether the UK is in or out of the European Union.
By Nir Debbi, co-founder and CMO at Global-e