The Electronic Retailing Association

Comment: After all the noise and the fury what does Brexit really mean for the home shopping industry?

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Richard Burrell, (middle) speaking at this years MCMS Congress in Venice.

by Richard Burrell

It all seemed so simple when it was presented to the British electorate in the summer of 2016:

“Do we want to stay members of this club?”

Too simple in fact.

Brexit has been called the most momentous decision taken by the UK electorate since they rejected Churchill for Attlee and the Welfare State at the end of WW2, partly because the world of the 21st century is much more interconnected than that of the late 1940’s and partly because of the lack of reliable information on both sides to educate the vote. This was a vote of the emotions rather than a vote based on clear facts and policies.

But now the political grandstanding is past, what does this really mean for our industries both in the UK and elsewhere?

The first and most unsettling impact is uncertainty, which leads to indecision and caution.

Why? Because there are so many things we don’t know.

As Donald Rumsfeld once said in a different context: “There are the things we know we don’t know and then there are the things we don’t know (realise) we don’t know”

The first impact the day after the vote was a sharp decline in the value of the £. As many retailers buy in dollars and sell in £ this meant a choice for UK domestic businesses between price rises and loss of margin. Most reacted quickly and quietly with a balance of price rises and changes in mix. However, we saw bizarre headline grabbing reactions which were, perhaps, unwise.

Who in the UK will forget the “Brexit Toblerone”: Less chocolate in the same pack to keep the price the same?

But what if this change in currency values continues or worsens?

For UK companies trading overseas there could be a competitive price advantage over local players, although this may be removed by new cross border tariffs and processes. But the main and lasting effect is a reduction in margin. UK retailers are going to have to learn to live with this for the foreseeable future.

Then there is the impact on the prosperity of the EU. The UK economy is roughly the size of the French economy so it is a significant part of the overall EU. Make no mistake the economy of the EU will shrink when the UK leaves. This is likely to affect the value of the Euro and may also depress demand in the remaining member states and while a weaker Euro may be good for exports that is probably where the good news stops.

With the UK the largest buyer of German cars in Europe and one of the larger consumers of French wine and Spanish vegetables to name but 3, the negative impact could be significant.

As an example: a report by the Netherlands Bureau for Economic Analysis suggests that Dutch – British trade could shrink by up to 30% and Dutch GDP by between 1.2% and 3.4% by the year 2030. The Dutch will not be alone.

Companies in the UK have become used to the simplicity of shipping goods to customers across the union, while UK customers have increasingly ordered goods online from companies across the EU. A whole cross border industry has grown up around it. With Brexit this is set to become more complex, slower and more expensive with all the associated customer service issues this will create.

Take the example of Switzerland, not a member of the EU but a member of the “fringe group” the EEA: even with the 2010 reforms by the Swiss Government, goods shipped to customers in Switzerland from EU member states are subject to a variable cross border tariff and to Swiss VAT, which is administered subtly differently to the EU states. With recent automation changes at Poste Suisse this is now collected electronically but it adds around €10 to €12 to the average consumer purchase. Returns become a real problem with the tax refund sometimes lagging weeks behind the refund of the price following return of the goods. The Swiss have substantial experience of this work and have recently applied the lessons of their experience. The British do not and we can expect teething problems as the tax and duty barrier comes into force in both directions.

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TV and Digital Retail expert, Richard Burrell, UK.

 

Best known for his recent role as VP for Corporate Development EMEA at QVC, Richard Burrell has over 20 years’ experience in TV and digital retail in 6 markets across the world. Most recently he was the project Director for QVC’s start up in France.

Prior to joining QVC, Richard's career has spanned the BBC, Thames Television and various television news organisations. Originally an engineer by training, he has also served as a council member of the Digital Television Group (DTG).

The impact of EU rules on product regulation and compliance was often quoted in the referendum campaign with much press comment on “independence from Brussels”. The reality is that British made products will need to comply with EU rules to be sold in the remaining 27 EU states, and vice- versa, so the various compliance regimes in place now are unlikely to change overnight. Indeed this is reflected in the “UK Withdrawal Act”, currently before parliament, which codifies the EU rules and regulations into British law for later review. This will provide for a stable transition.

A way to simplify this for the future (and a lobbying point for the ERA??) would be for The UK to adopt the “Cassis de Dijon principle” as a part of the Brexit agreement. Again, this is a measure adopted by the Swiss in 2010 and allows that a product approved for sale in one member state is automatically approved in all member states.

Broadcasting, electronic media and ecommerce/ distance selling are all covered by EU wide directives from which the member states derive their laws. In the case of broadcasting this is the Audio Visual and Media Services Directive (AVMSD), which provides (among other things), that a license granted in one member state is automatically valid in all other member states. In addition it allows the regulation of the channel to be conducted in its country of origin rather than in each audience state. This has led to a fast growth of UK based channels broadcasting to a range of markets inside and outside the EU.

If the UK does not continue to be a part of AVMSD after Brexit, any channel with its European operations concentrated in London will have to apply for individual licenses in every member state in which it has distribution, or move its operations inside the EU. This issue affects mainstream broadcasting more that TV Shopping but should not be ignored

It seems unlikely that UK E-Commerce and Distance Selling law will diverge much from the EU directive. However, in the very topical area of data privacy this may well happen and happen quickly. Will the UK adopt the more onerous provisions of GDPR and the E-Privacy Directive currently under consideration in Brussels? It seems unlikely.

As is often the case, the impact on larger companies is likely to be less stark than on smaller enterprises. The “big boys and girls” with operations and markets across Europe and the world will relocate to where it makes the most sense. Some may take a long-term view that post Brexit UK is simply too small to merit the trouble. This could particularly be the case with the more global vendors for whom the UK is by no means their largest market.

We have heard a lot in recent weeks about “Hard Brexit”, “Soft Brexit”, “WTO Rules Brexit” and many other variants. And then in the middle of all this rhetoric and posturing The British PM called the most ill-advised election for many years and threw away a clear majority. Any certainty and “strength and stability” was blown away by the response of the electorate and left a minority Government struggling to hold its position against the opposition.

Does this mean a softer approach and a more reasoned negotiating position from the UK? Or does just hand all the cards to M. Barnier and the EU team? Some senior UK politicians have suggested that Brexit “may never happen”.

Time will tell us the answer but one thing is sure: the next few years will be a bumpy ride for both the UK and the EU and the industry needs to ensure that its voice is heard loud and clear in the corridors of power of both London and Brussels