Below Alison Conley, Head of Retail & Consumer at MHA MacIntyre Hudson, explains some of the prospects for UK retailers at either side of the Brexit deal outcome.
The sums at stake for retailers as a result of Brexit are huge. With the value of UK imports from the EU and the rest of the world totalling £590.5 billion*, the threat of the import tariff post-Brexit means UK retailers must re-examine their supply chains and scrutinise their product portfolio.
Post Brexit, UK retailers reliant on imports will face 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 would mean that top selling consumables such as vegetables, berries and clothing could suffer from a drastic change in consumer perception of ‘essential goods.’
Free from the parental guidance of the European Customs Union, the UK would be able to alter the tariffs on goods. Nonetheless, the World Trade Organisation (WTO) would insist that the UK didn’t 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. The UK would have to impose tariffs on all of its trade partners, including the EU, causing the price of imports in 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’re 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 will naturally filter into the prices charged to the retail consumer and domestic producers may, in turn, increase their prices in response. With all of this potential competition, the British consumer will need to be the top priority when the UK retailer assesses their pricing strategy.
Major UK retailers could adopt temporary measures post-Brexit, absorbing the increase in import charges to protect their market share from the likes of Amazon. The twists and turns of tactical ‘retail poker’ among retailers could be endless and the introduction of import tariffs will revolutionise 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 trade agreements with countries such as China and the United States, to date 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 to increase global connectivity;
- Assessing the need for additional human capital; and
- Applying for Authorised Economic Operator status to allow for faster access to certain simplified customs procedures, and in certain cases enable shipments to be ‘fast-tracked’ through some customs and safety and security procedures.
