Retailers uncertain over no-deal Brexit

Retailers selling in the UK are beginning to prepare for a difficult and uncertain future after Prime Minister Theresa May’s proposed Brexit deal was defeated by an overwhelming 432-202 margin on Tuesday.

Supermarket giant Tesco has reportedly started renting refrigerated containers to store extra product, according to the Financial Times, which saw an internal communication that refrigerators used during the Christmas period will stay on-site for the remainder of the year “as part of a contingency plan due to Brexit.”

US-based toy-maker Build-A-Bear Workshop this week lowered its guidance for fiscal 2018, noting “several anomalies that converged to negatively impact our business”.

“The shortfall in our year’s results are largely attributed to the persistent and significant revenue and profitability challenges in the UK as unresolved issues related to Brexit negatively impacted consumer confidence and currency exchange rates and new privacy laws, known as GDPR, impeded our marketing communication,” Build-A-Bear Workshop chief executive Sharon Price John said in a note to investors.

While the retailer expects the rate of revenue decrease to be in the low-single digits in North America, it estimates that revenue will decrease between 17 and 20 per cent outside of North America largely isolated to the UK.

According to IBISWorld senior industry analyst Liam Harrison, a no-deal Brexit could very well dissuade international retailers from continuing operations within the UK if their supply chains are required to go through the EU, as this could make importing goods prohibitively expensive.

“The effect of Brexit will be felt differently by retailers, dependent on their reliance on supply chains and customers from the EU,” Harrison told IR.

“The British retail industry will struggle to maintain supply chains, at least initially, in the face of a no-deal Brexit. For many retailers, especially those in perishable goods and pharmaceuticals, this may result in shortages short-term as supply chains adjust to the new customs measures.”

Harrison noted that both British and international retailers could face difficulties, as imported goods will be subject to strict customs checks and non-preferential treatment, significantly slowing down trade and increasing the cost of supply chains.

Possible boon for Aussie retailers

At the same time, however, the British Government has been attempting to negotiate free-trade agreements with countries such as Australia, New Zealand and the United States.

“This may present an opportunity for Australian retailers looking to expand globally,” Harrison said.

“According to the Department of Foreign Affairs and Trade, the UK was Australia’s 7th largest two-way trading partner in 2017-18. A successful free-trade agreement negotiation between Australia and the UK could allow Australian retailers to capitalise on a no-deal Brexit.”

Australian Prime Minister Scott Morrison told reporters on Wednesday morning that the Government had been working since the UK referendum to ensure market access to both the European and British markets into the post-Brexit future, and that Australians should feel “reassured”.

In an interview with Forbes, European e-commerce and omnichannel trade association (EMOTA) secretary general Maurits Bruggnik said the supply chain disruption is likely to hit consumers hard as well – with delivery times expected to grow based on the difficulty of getting stock in and out of the region.

“With some product categories having return rates of up to 50 per cent, the issue of delays will be even more important,” Bruggnik told Forbes.

“This will quickly lead to a serious downturn in e-commerce… If a shopper is willing to wait long for a parcel delivery because of price different, the UK will always lose to China.”

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