Covid And Brexit – The Perfect Storm. But How Does Retail Survive It?

It’s been an incredibly hard time for both retail businesses and customers alike. Forced lockdowns, combined with health anxieties and economic worries do not encourage consumer spend.

The British Retail Consortium (BRC) reported that 2020 was the worst year for retail since records began in 1995, with a 0.3% fall in total sales, while sales of non-food in physical shops fell 24% year-on-year as we were all told to stay at home.

Shoppers who are spending in lockdown are mostly doing so online – as the digital convenience trend paved by pureplay titans like Amazon, Uber and Deliveroo has been adopted at speed due to Covid-19 restrictions. These online habits forged during lockdown are here to stay as customers realise how easy and convenient it is to shop from around the world, while sat on their sofa.

But selling purely online comes at a cost to most high-street retailers, not to mention the additional logistics of social distancing at warehouses, combined with stores standing empty for months on end making zero sales. There have already been a few casualties, but our ever-resilient retailers have rose to the challenge and kept our country going through one of the toughest periods in living memory.

And just when we were all getting used to this new way of pandemic life, a little word with the ability to stir up an ever-contentious debate comes barrelling back into our lives at the tail end of last year. Brexit.

The Double Blow

Of course, Brexit never went away. But with a global pandemic to contend with, you’d be forgiven if the transition deadline of 31 January 2020 crept up on us all a little too quickly. Quite simply, the double blow of Covid and Brexit was the perfect storm.

We breathed a sigh of relief as Boris secured a free-trade deal moments before Christmas, but now we’re officially out of the single market there are still many hurdles to jump through with UK customers already complaining about unexpected charges on EU-imported goods. These tariffs also apply to EU customers shopping with UK companies, with headlines suggesting UK products could be abandoned on the continent and burnt if shoppers refuse to pay the tariffs as it is too costly for retailers to facilitate returns.

That’s before we even touch on M&S favourite Percy Pig being held hostage on the Irish border as the sweets are impacted by the ‘rules of origin’. Even Covid-19 vaccines have been dragged into the Brexit argument.

The increase in eCommerce which helped retailers stay afloat over the last year, will be the centre of many of these Brexit-related changes. But what exactly should retailers be keeping an eye on?

What’s the Impact on Retail?

  • New import/export procedures: From online fashion sales to our fisheries – many areas of industry are facing additional charges when moving goods in and out of the UK.
  • Rules of origin: The BRC said that at least 50 of its members were facing potential tariffs for re-exporting goods to the EU – these tariffs are paid depending on where a product’s ingredients or materials originate, or where it has been manufactured.
  • Changes to legislation: EU legislations businesses have been adhering to for many years may no longer be applicable. Companies continuing to do business in the EU will still need to comply with data protection GDPR guidelines, but legislation over food safety, for instance, will most likely change. Conversations about chlorinated chicken are hot on the agenda but are yet to materialise as US trade talks are still underway.
  • Labour: European migrants make up a significant portion of our talent pool in the UK and Covid has already seen 1.3 million foreign-born workers leave during the pandemic. Now Brexit will make that harder for them to return which could lead to labour shortages.

What can we do to Bolster our Businesses?

  • Understand your export and import charges: You must get hold of the correct information for your business in terms of adhering to customs clearance because delays are costly. Gov.uk has a wealth of information, including this guide on ‘Import, export and customs for businesses’ to understand your responsibilities on VAT.
  • Communicate with customers: Shoppers are much more understanding of problems if they are aware of what is going on. If you believe Brexit will result in gaps in your merchandising, a delay to your shipping times or additional customs charges, communicate with shoppers clearly and early on. Equally if you plan to absorb any additional taxes put this information at the top of your website to encourage cross-border customers to shop with you.
  • Reduce compliance risks: Make sure you keep on top of new legislations. At this early stage, these rules are still very much up in the air as the government tries to strike trade deals with other countries like the Pan-Asia trade pact. Even the most prepared business may discover a nasty surprise as we navigate our way out of EU legislations we have been trading under for many years – if in doubt, seek legal advice to avoid any infringements and potential fines.
  • Enable your workforce: With a reduction in workers, this might be a good time to look into automating business processes. From AI-powered chatbots to reduce stress on call centres to automation within your warehouse, the power of this new technology allows humans to focus on more skilled areas of your business.
  • Tighten up your supply chain: All of these Brexit challenges ultimately impact your supply chain so this is the area that needs most of your attention. The priority should be ensuring your supply chain is as transparent as possible so you can quickly identify problems and reduce compliance risks. By working closely with your key suppliers you can identify potential changes in your supply base ahead of time and ensure your supply chain is agile and resilient.

Navigating our way Towards Calmer Waters

And while 2021 hasn’t exactly been the fresh start we were all hoping for as we navigate our way through Brexit-related red tape during yet another lockdown, there is some hope on the horizon now vaccinations are underway in the UK. In the second half of this year, with retail hopefully open, alongside leisure and hospitality, more people will be on our high streets ready to buy a new outfit for that long-awaited evening out at a restaurant, or (dare we wish for it?) a holiday, injecting money – and life – back into the economy.

More importantly, if the UK can get a solid grip on the Covid-19 crisis this frees up government to spend more time and energy focusing on supporting businesses through the Brexit transitions.

The main thing to remember is the importance of planning and ensuring your Brexit and digital transformation plans are agile enough to quickly pivot when necessary. If 2020 taught us the lesson of resilience, 2021 will be the year of adaptability, and those who will emerge as winners will be the businesses with robust supply chains and complex multi-channel strategies that can communicate effectively with customers at a moment’s notice.

For more guidance please explore the SAP UK & Ireland Brexit Hub.