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Brexit: what does it mean for online retailers?

Whether it’s selling to a customer in France or importing supplies from Italy, Europe plays an instrumental role for many of the UK’s online retailers. The EU is Britain’s largest trading partner, while western European markets account for more than 50% of the export market for online businesses, according to Volo, the community of multichannel sellers.

Now online retailers – like many businesses, politicians and the rest of society – are grappling to understand what the decision to leave the EU might mean for their future. While nothing is clear-cut as yet, etailers say the effect is already being felt, not least because of the depreciation of the pound.

However, if Brexit does go ahead there’s likely to be a change in rules and regulations for etailers, says Lesley Batchelor, director general of the Institute of Export. “If your stock is imported to an EU warehouse, ie the EU is the first port of entry, then the seller will have to register a non-resident VAT registration in that EU country.”

Batchelor adds that goods may attract local VAT and import duties depending on how any trade agreements are set up. At present, British firms do not pay import duties on goods exported to Europe. “Additional costs in administration and customs clearance charges may also impact orders,” she says.

Professor Joshua Bamfield, director of the Centre for Retail Research, says online retailers are likely to experience a boost in sales overseas as a result of the weaker pound which should help them cope with additional costs.

“UK-based online retailers will be able to sell a lot more goods abroad priced in sterling, as their prices are much cheaper now compared to overseas rivals,” he says. “They will benefit although they need to be careful when hedging their currency bets. Alternatively they can increase their profitability by raising their international prices if that helps them more.

“However they will now face EU controls over sales to EU countries, which will disadvantage them. The boost from devaluation should help to overcome the new duties to be imposed, but we may find that the larger ecommerce companies will create a base within the EU to sell into the EU.”

However, small businesses say they are concerned that if the UK loses access to the EU’s single market, they could be stifled by increases in trade costs.

Mike Cherry, national chairman at the Federation of Small Businesses, is lobbying for government action to ensure small businesses can maintain access to the single market. “We have already started work with the government on our small business agenda, attending business secretary Sajid Javid’s business summit with other UK business groups,” he says.

At the summit, Cherry stressed that smaller firms needed simple access to the single market, the ability to hire the right people, continued EU funding for key schemes and clarity on the future regulatory framework.

Many small etailers are hoping that the government is successful in negotiating access to the single market. Alegbe says: “We feel that they should work to preserve free trade with the EU and to keep the status quo with regard to there being no trade barriers or no trade surplus taxes and free movement of goods and labour with the EU in some form.”

Bamfield, however, argues that Brexit offers online retailers new freedoms, especially when it comes to their supply chains. “Leaving the EU means, in theory, that retailers can buy in the cheapest markets,” he says. “Tariffs that the UK imposes on imports may be lower than the EU ones or even zero – in food imports, for example. Every retailer needs to analyse what this new freedom will mean for them and start creating new supply chains. Of course if we end up still in the single market, this will not be possible (probably).”

Another setback for etailers could be a slowdown in sales. “The main concern for online retailers is around the potential longer-term impact on shopper confidence,” says Justin Opie, managing director of online retail trade body IMRG. “If shoppers experience a pinch on their spending capacity that lasts over a prolonged period, then that could present challenges to retailers.”

What happens next is far from clear, but for many small retailers it’s business as usual as they come to terms with the changing economic landscape.

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