Today, the population of the UK will be asked, via a referendum, whether the country should leave or remain in the European Union. Public figures have been outspoken in advocating both sides, but what does each outcome mean for those in the retail world? Andrew McClelland, head of industry insight at IMRG, the UK’s industry association for e-retail, investigates how the Brexit could affect the sector, while lingerie retailers also have their say.
The UK joined the European Union, then known as the European Economic Community (EEC) on January 1, 1973. Further expansion of the EEC over the following years saw the community grow to 28 members and become known as the European Union. Enlargement has also seen a number of treaty changes including the free movement of people, goods and services and ever closer political union.
To facilitate trade amongst the members, the EU develops legislation that should bring a level of harmonisation across the EU28, helping both businesses and consumers understand their rights and responsibilities. There are ‘degrees’ of harmonisation in these rules.
Directives set a core ‘objective’ but leave member states governments to enact them in a way that suits the local market. For example, the Consumer Rights Directive.
Regulations produced by the EU are enacted straight into national law with no room for localisation. An example of a regulation impacting online merchants is data protection. This alignment of legal frameworks makes it easier for trade to take place within the EU but the ‘loss’ of sovereignty is one factor influencing the political group looking to encourage an ‘out’ vote.
EU membership represents easy access to 500 million consumers and the associated business opportunties. As a trading partner, UK’s exports to the EU totalled £230bn in 2014 whilst imports were valued at £289bn.
Easy access to this market is core to the argument for those wanting to stay in the EU. At the same time though, exports from the UK to non-EU businesses total £283bn whilst imports are £259bn; a positive trade balance of £24bn.
This represents the main benefit for those advocating leaving; the UK does trade outside of the EU and operating alone would allow the country to negotiate its own trade deals, rather than rely on those done by the EU. The downside however, is that the UK has 60 million consumers, not 500 million, so the deals it would get might not be as beneficial as those negotiated as part of the EU.
In the digital retailing context, UK online consumers are already avid cross-border shoppers and interestingly the main destinations are outside of the EU, with the top three being US, Australian and Chinese websites.
The main EU members that UK consumers shop with are Germany and France, who come in at 4th and 5th. In theory, the similarity of the rules governing B2C business within the EU should encourage more inter-EU, cross-border shopping.
For the UK consumer however, language, culture and price trump geography.
For international merchants trading into the UK, its EU membership status will have little impact on digital operations. For merchants within the EU who trade with UK consumers, the short-term implications of the UK leaving are unknown.
It is likely that consumer legislation will remain, as will taxation reporting requirements, thereby minimising near-term changes. An ‘out’ vote will require trade negotiations between the UK and the EU and it is likely that the baseline for this will be adoption of key EU legislation, as in the case of Norway.
The biggest impact is likely to be changes to consumer confidence overall should the UK leave. Uncertainty will be a factor as the UK negotiates new trade agreements with former EU colleagues and other markets; the political fallout from an ‘out’ decision and a global realignment of relations with the UK. An ‘out’ vote would also likely trigger a new referendum campaign for Scotland to leave the union and perhaps pursue its own membership of the EU.
Global merchants trading into the UK may have to adopt to new trading conditions, but there is unlikely to be any major changes in the consumer space. One exception could be where a merchant has a physical presence in one EU state and trades into the UK; it is likely that UK sales will have to be accounted for in the UK.
UK merchants trading into the EU and their continental colleagues trading into the UK could see major changes to the way they run their businesses. For example, the consumer proposition will likely remain fairly similar, but duties and taxation will take on a different meaning. New tariffs could make a merchant uncompetitive against other EU retailers and will remove some of the competitive edge against other global merchants.
An ‘in’ decision will see little change in the trading environment, except for political machinations with a governing party coming to terms with some of its members voting against the Government position.
Whatever the result on June 23, the UK online retail market is an attractive one. Worth over £114 billion in 2015 and growing at circa 10% every year, UK consumers are already trading on a global basis and this is only set to increase.
So what does the UK’s EU referendum process mean to international digital merchants? With a few tweaks, it could be business as usual.
What the retailers say:
Georgina Willis, owner of Guilt Lingerie: “Let’s not be afraid of the short-term at the expense of the long-term. The lingerie industry in Europe leads the world. They have the best show in Paris with excellent product, production and design. Britain merely follows with smaller shows selling to a shrinking pool of independents who compete with the internet and direct selling by manufacturers. Britain has an incredibly strong design ethic with world-renowned talent. We need a lingerie Tsar to champion British lingerie – to boost an industry that should run alongside London Fashion Week and rival Paris. We have the talent and ‘Savile Row’ excellence. Have we got the nerve?”
Simon Dames, director of Global Communications at Vanilla Blush: “As an individual voter I’m a strong believer in reminding all who ask that there are three walls in a voting booth for a reason – it’s a private matter. However, as the co-owner of the British-based Vanilla Blush, which has an ever-expanding EU market, I am certain of one thing – I’m suspicious of uncertainty. And whether or not we vote to stay or go, the one thing I do desire is, once the answer is given, we accept it, get on with it and make it work.”
More points of view:
– The British Retail Consortium has stated that it will remain neutral in the debate, reporting that it “will not be advocating” either side of the campaign. A spokesman for the organisation did, however, comment that it will urge the Government to be clear on its policies in the event of the Brexit, so that “people can make an informed choice at the referendum”.
– Philip Benton, senior analyst at Euromonitor: “If a Brexit did take place, the value of the pound would likely plummet and import costs would rise. In the long term, theses costs would have to be passed onto consumers with many UK retailers relying on suppliers in the EU. Retailers are already faced with increasing costs in 2016 since the UK
Government introduced the national living wage of £7.20 for those aged 25 and over in April. On the flip side, it could be argued that the increase in wages across the country could increase consumer spending, which would benefit UK retailers.”