How will Brexit impact U.S. e-retailers?
June 24, 2016 03:50 PM
The United Kingdom’s decision to leave the European Union will likely impact North American online retailers, both immediately and in the longer term.
The immediate impact will fall on the many U.S. and Canadian e-retailers that accept orders from consumers in the United Kingdom. With the British pound falling 7.5% against the U.S. dollar today in the wake of the Brexit vote, goods priced in U.S. dollars automatically become that more expensive for British consumers.
That will affect a large swath of the leading North American web merchants: 212 of the Top 500 retailers in the United States and Canada ship to the United Kingdom, according to Top500Guide.com. That makes the U.K. the leading international destination outside of North America for Top 500 web merchants.
U.K. consumers are the most likely to purchase from international websites of all the markets studied in a report last year from international payment processor Payvision. 54% of U.K. consumers have made at least one purchase from a retail website in another country, and the most popular country to buy from was the United States, cited by 27% of those British online shoppers.
In the longer term—and it likely will be a year or two at least before the United Kingdom leaves the EU—the U.K.’s exit from the EU free-trade zone will make cross-border sales more complicated for U.S. web merchants, says Eric Heller, founder of MarketPlace Ignition, a consulting firm that advises retailers and brands on selling on web marketplaces, including internationally.
“Today our clients can land anything in any Amazon fulfillment center in the EU and be eligible for Prime shipping anywhere in the EU,” Heller says. “It’s a shame that eventually goods will have to be sent separately to the U.K. This will make reaching that market a little more complex than it is today.”
The implications of Brexit are limited for Europe’s digital economy in the short run, Simon Birkenhead, European managing director for consulting firm L2 wrote in a note today. “Digital products, such as online advertising or digital intelligence, are unlikely to be impacted directly by a UK withdrawal as the EU does not impose tariffs on intangible goods,” he says.
U.K. consumers and businesses also may cut back on their spending for a time, fearing job losses or economic disruption, Birkenhead adds. That could impact North American retailers, manufacturers, wholesalers and distributors that sell online to U.K. customers.
On the other hand, he says, companies with a strong digital focus may ultimately benefit from any disruption that flows from Brexit.
“As international companies turn inwards to focus on reviewing their business strategies and budgets in light of Brexit, there’s an opportunity for faster-moving competitors to aggressively use digital to increase their share of voice and capture market share, Birkenhead says. “The digital economy is global and is largely unrestricted by country or trading bloc borders. We would encourage digitally led organizations to use the confusion around Brexit to outsmart their slower moving competitors and focus on delivering exceptional digital experiences for their customers.”
Forrester Research group director Laura Koetzle wrote in a blog that “while times of high-market volatility can tempt firms to panic and cut spending on customer-focused initiatives, now is the time to drive innovation in order to win, serve, and retain customers."
Forrester summarized her post as projecting these five major implications from the UK’s “leave” vote:
- Concerns about immigration laws will crush the UK’s talent pool as digital and customer-facing talent will migrate out of the UK.
- Product and delivery innovation will slow as companies need to spend more time and effort to work with innovative companies across borders.
- Uncertainty over privacy regulations and less access to data will impede firms’ quest for insight.
- London's financial services power and fintech cluster will shift to the continent.
- Global manufacturing and automotive firms will also move innovation out of the UK.
CIOs should not let Brexit derail their business technology (BT) agenda, Koetzle says in the blog. “If you do, you risk shrinking your revenue base and losing ground to international competition,” writes Koetzle.
“Instead, firms should focus on using technologies like automation and cloud to fully fund the BT agenda, retaining top talent and seeking new non-UK talent, and immediately working with data protection and privacy teams to maintain customer privacy and reassure customers their information is safe.”