Delay in Brexit Verdict making UK Retailers sweat? Here are 5 Business Operations which could get affected

April 11, 2019 5 Minutes Read

The ongoing Brexit stalemate in the House of parliament is not getting resolved anytime soon, much to the frustration of UK PM Theresa May and thousands of Brexit supporters. She will definitely be relieved and accept the European Union’s offer to extend Brexit to 31st Oct, and a review of the progress in June. She must now convince the members of Parliament and a Conservative Party who are losing patience in her leadership.

One of the possibilities is a Hard No-Deal Brexit from the European Union (EU) that will certainly hit the UK economy and the outcome will have a varied effect on all parts of the retail industry market.

Retail industry’s turmoil is real

In the uncertain future post Brexit, UK retailers will need to foresee the potential impact that it has on their overall business success and act accordingly to create new competitive advantages.

The immediate response to the impact of Brexit on retail industry is decreased household spending that will impact the repurchase intent and the retention rates. Plus, it will curb future expansion projects and reallocation of funding.

Retail industry must be prepared for the wider impact of the possible Brexit scenario affecting its overall business operation:

Product Standards & Policy Regulations:

UK retailers will still have to conform to the EU standards and the wider trade policies and regulations and the subsequent increase in compliance costs

There will be a potential loss in influence and clout that the UK retailers currently enjoy in deciding the EU policies, standards, and regulations.

Products sourced from EU and other regions could become more expensive as they have to pay duties and taxes as per the World Trade Organisation (WTO) rules if no free trade or transitional agreement is reached.

Retailers might need to figure out the cost of maintaining data centres in the EU region because of GDPR affecting information security and privacy.

Operational costs

Economic Growth & Consumer Preferences

A perceived slow economic growth due to Brexit leading to reduced consumer spending with falling demand and rise in customer expectations.

According to Oxford Economics, under the WTO trading guidelines, the long-term cost to the UK’s economy could be between 1.5 and 3.9% of GDP by 2030. It’s also predicted that the UK’s exports would be lowered by 8.8%

It is predicted that UK’s unemployment will be 6.5% due to Brexit fallout as migrant workforce’s accessibility & mobility across the EU borders is affected.

There will be a significant increase in labour costs as retailers must employ native UK nationals to overcome the migrant situation.

Employee satisfaction could get compromised as a result of uncertainties in their job security leading to decreased productivity and effectiveness.

Access To The Workforce

Supply chain & Logistics

Supply chain management and regulation concerns involve renegotiations & reassessment on the contracts and suppliers

Retailers could face difficulties in sourcing components across borders leading to cost variations.

And of course, the restrictive movement of goods and services across EU could pose as a hindrance to UK retailers.

What retailers should be focusing on?

In the event of Brexit, there are many long term possibilities for the UK and EU economies particularly the retail industry. In the end, whatever kind of agreement is adopted, retailers should consider a contingency plan to tide over this scenario.

The retailers should be ready to:
  • Prepare the right financial and investment strategy to mitigate any tax risks keeping all the internal and external stakeholders engaged across all platforms
  • Obtain clarity on the fallout of the governance, trade and investor protection rules to satisfy potential commercial, political and operational requirements
  • Protect your commercial interests through any corporate restructure, valuation or business modelling needs with market analysis and economic scenario modelling

The 31st October Brexit deadline will open up new challenges and opportunities for UK. The final result will have a major impact on activities across a range of core metrics including GDP growth, trade volumes, inflation, household spending, and employment.

Preparing for this changing retail landscape is the only possible solution for UK business owners. They might even consider moving a part of their operations into the EU to minimize the risks associated with the slow movement of import and export activities.

Whatever the outcome is, the retailers will have to deal with customer volatility, increased scrutiny, operations reliability and escalating costs. Hopefully, they will continue to remain positive regardless of the future of UK retail industry as a whole.

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