More than 14% of all B2C purchases in the United Kingdom are conducted online. This makes U.K. one of the largest eCommerce markets in the world. Although this country has a much smaller population than Germany or France, some of the biggest European eCommerce businesses are registered in its territory.
This includes the SportDirect, which is one of the biggest online sport stores in Europe. SportDirect and many other online stores based in the U.K sell a large part of their assortment to customers from other E.U. countries.
Recently, Brexit has shaken the foundations of the European Union, and many eCommerce entrepreneurs are wondering how will the new political reality influence the cross-border goods exchange between the United Kingdom and other the European countries?
eCommerce in the U.K.
United Kingdom has the biggest eCommerce spending per capita out of all European countries. Its eCommerce niche produces more than 6% of the country’s GDP. Also, more than 20% of online stores from the United Kingdom sell their goods to E.U. customers. From these statistics, we can see that the United Kingdom has deeply embedded the eCommerce model in its economy and that any kind of disruptions in the U.K – E.U. relations can have dreadful consequences.
Unfortunately, most U.K. voters didn’t have that in mind on the referendum day. Pro-Brexit forces won and the U.K.’s withdrawal from the European Union is now imminent. This decision will soon entail changes in trade agreements, regulatory requirements and labor rights and the introduction of customs in the cross-border trade. The terms of Brexit are still not fully established, but they’ll probably cause various short- and long- term consequences.
So, what consequences can the U.K.’s eCommerce entrepreneurs expect?
Although U.K. eCommerce businesses won’t experience a drastic sales decline in the next few months (or even years), the short-term consequences of Brexit are already visible. The most notable consequence is the 7% decline of the British pound. This will make eCommerce prices in the U.K more favorable to E.U. buyers, but this trend will end after the European Union installs customs on the U.K. imports. Although the U.K. online store owners are currently experiencing higher sales, their profit will drastically drop as a consequence of countrywide recession.
Cutting the supply routes
A weaker pound doesn’t change much in the terms of goods produced in the United Kingdom, but it affects the imports from other countries in a very bad way. The U.K. eCommerce entrepreneurs, who sell foreign imports will spend much more money for supplying their stores and their revenue will worth much less on the international market. This will delay many significant investments in the eCommerce field, at least before the Brexit regulations become more clearly defined.
The U.K. won’t be an entry point for European market anymore
Brexit will also cause many long-term consequences. The number of eCommerce businesses in the U.K. is going to decrease. Before Brexit, many American companies decided to register their eCommerce subsidiaries in the United Kingdom, so they can sell their goods on the E.U. market. Now, several countries in the continental part of E.U. will try to attract these businesses by offering them favorable terms. Estonia has been the most successful, because it enables entrepreneurs to register a fully-digital business entity and use it for targeting the EU market.
The increase of shipping costs and customs fees
One of the most dreadful consequences for U.K.’s eCommerce businesses will be the increase of shipping costs and the introduction of customs fees. Consumers from the continental part of the E.U. won’t search for the affordable consumer goods on U.K. online stores anymore, since the shipping and customs costs for a product will take as much as 30% of its price. In order to retain their European customers, the U.K. stores will need to introduce flat shipping fees, which will drastically decrease their overall revenue.
In order to compete with the E.U. merchants, the U.K. eCommerce stores will need to come up with an innovative cost cutting scheme. We can expect that many retailers will replace their complex online stores (made from scratch), with more affordable eCommerce solutions. By the way, this shift won’t affect their sales, because many of these solutions come with advanced branding and customizing options and plenty of professional themes.
Recruiting and hiring difficulties
From now on, it’ll be much harder for the U.K. businesses to hire experts from E.U. countries in a regular way and offer them in-office jobs. This will affect the payroll in many eCommerce companies, because now they use an affordable labor from less developed European countries, like: Poland, Portugal, Hungary and Romania. In the future, U.K. eCommerce companies will need to hire remote employees and use online collaboration tools and freelance marketplaces to run their business operations.
Although many people thought that Brexit will completely destroy the eCommerce business in the United Kingdom, the U.K.’s online retail sector will continue its growth trajectory. The main zone of interest of many U.K. businesses will now shift from European to Commonwealth market. When it comes to European cross-border trade, eCommerce companies from the U.K. will need to adjust to the new reality and find ways to overcome all regulatory hardships that will come ahead.