Returnado is a Sweden-based service which manages the returns process for large brands. Returnado CEO Haider Abdo said that Brexit is set to have a profound effect on the returns process in retail, adding further costs for smaller EU businesses and, subsequently, the consumer.
Abdo said: “Brexit, even after its effect, has unclear rules. We’re already seeing non-UK merchants being as ill-prepared as one can expect. We’re seeing EU-based customers who previously bought items from the UK shop here less, with customers experiencing a sub-par and slow shopping experience.”
Retail Insight Network spoke with Abdo to find out more about the impact Brexit has had on UK and EU-based retailers and what it means for the future of the retail industry.
Jessica Paige: Why is Brexit causing delays in getting refunds?
Haider Abdo: Currently, most companies have deeply-integrated supply chains called just-in-time (JIT) where supplies are delivered in small quantities at very high frequencies from suppliers that are located in nearby regions or countries. As well as reducing costs, a key advantage of such JIT systems is maximising product and service quality.
However, for JIT to work, the whole delivery system has to be frictionless. Enforcing compliance with EU requirements will make cross-border JIT systems almost impossible to operate. Even if it only takes 30 seconds per truck to enter or exit the UK, the lines become several kilometres long.
From the moment the customer initiates a return, Brexit is likely to cause disruptions to existing returns flow, plus consumers having to pay extra to import and export the purchased items back. As every brand and customer is different – brands will have to cater for a variety of scenarios all of the time so returns don’t get stuck in customs.
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JP: Has Brexit created any new laws for UK and EU-based retailers?
HA: Firstly, detailed data will be required to export and import goods. Secondly, customs declarations will be required for each parcel, while sent goods are subject VAT and duties when applicable. Inspections will take place on some goods – imported or exported – and rates will change as a result of customs handling. Transit times may also increase because of linehaul changes and potential customs checks.
JP: What are the main ways Brexit has affected UK retailers?
HA: With an estimated €52bn turnover in 2020, the UK is the third-biggest e-commerce market in the world after the US and China. The internal market is big, and many local retailers have been able to set up base and create a strong presence serving the local market.
These merchants have also had the privilege of growing with the internal market of the EU. We’ve also seen that large international retailers have stationed their EU operations in the
UK, serving both the UK as well as the rest of EU, for example, through Amazon UK which ships to many countries in the EU.
With Brexit in place, however, customs rules mean more costs, friction and time needed for each shipment for all EU-based transactions. This leads to consumers in the EU being less interested in shopping from the UK where there are EU-based alternatives, prices will naturally also increase, leading to UK retailers being less competitive outside of the UK.
A lot of customers from the UK buy and/or return items from merchants in other countries. Consumers might not even know which merchants are shipping items from other countries or not. Localised webpages and selection might still be shipped from a warehouse in Germany or Sweden.
JP: What are the main ways Brexit has affected EU-based retailers?
HA: EU-based retailers will have a harder time competing with UK-based retailers since they will likely deliver slower, there will be more friction when both purchasing and returning items. With these extra fiction points, prices will likely need to increase as well making them less competitive to UK-based merchants.
JP: Are there any positives for UK retail to come out of Brexit?
HA: Short term, UK-based retailers who have had a hard time competing in the EU market will have fewer competitors and the ones that can attract the 32 million UK customers that were shopping outside of the UK pre-Brexit will be able to benefit.
However, all retailers relying on non-UK shopping will have a harder time competing and will have an increased cost base. UK-consumers will see smaller and niche-brands either stopping to sell items in the UK or offering a more friction-full purchase and return process. We expect prices to increase as well.
JP: Are these changes temporary or permanent?
HA: Web shopping is fuelled by selection, availability, competitive pricing, and speed. With Brexit, all these things will be affected in the long-term after all the new rules are understood. When non-UK merchants have implemented changes, we’ll likely see a big drop.
However, with the UK being the third biggest e-commerce market in the world, we expect that bigger and high-growth retailers will do their best to capture/keep market shares. Long term, we expect smaller non-UK retailers and brands considering not entering the UK market and overall availability, and pricing to increase.
JP: What should retailers be doing now to adjust to Brexit-caused changes?
HA: Retailers should “eat their own dog food” and decide which markets they want to compete on and establish as friction-free flows as possible for purchasing and returning. Identify the right suppliers that can help you as a retailer reduce friction points for both your customers and yourself, leading to a lower cost base and competitive pricing and speed.
Finally, consider establishing a proxy warehouse in the EU to speed up shipping and reduce costs.