Brexit is significantly impacting consumers and retailers operating in the UK and the European Union (EU) in a myriad of ways, including trade tariffs, the movement of goods, changes in the labour market, and general repercussions relating to consumer attitudes and buying behaviour across the region. While these changes pose some initial hurdles in day-to-day business, Brexit will also provide fresh opportunities for retailers to consider and explore.
Listed below are the key consumer trends emerging as a result of Brexit, as identified by GlobalData.
The end of the transitionary period of the EU-UK deal brings with it a series of intended and unintended ramifications. One significant change under the new deal is that all EU retailers selling to the UK must now pay value-added tax (VAT), which implies shifting costs either to consumers or squeezing profit margins.
Covid-19 has already led shoppers to prioritise their spending on essential categories; with this extra tax burden and potential higher prices, shoppers will cut back their spending further on discretionary product categories. Clothing and footwear have been one of the most adversely affected product categories due to reduced spending.
The implementation of VAT on importing goods from the UK to Ireland will result in higher product prices. According to the deal, goods from the UK worth more than €22 ($24.66) are liable for Irish VAT payment, which is additional to the UK VAT that is already applied. Consumers will have to pay the extra amount to the delivery companies in order to receive their parcels. Shoppers can claim a refund of the UK VAT from a British supplier, but this is a potentially lengthy process.
Along with considerable price rises, shoppers might also face issues in terms of customer service, placing returns and replacement orders. Besides this, the longer-than-expected delivery times might also dampen demand for imported products. While the deal has had significant implications on the ecommerce industry, on the flip side, it will lead shoppers to buy more local products than before, which will benefit domestic businesses.
Brexit will have a significant impact on duty-free spending as the new regulations bring a series of implications. The British government’s decision to scrap tax-free sales of goods including clothing in airports for travellers departing from the UK to non-EU countries will lead to reduced spending in airports. It is anticipated that the Covid-19 impact along with the end of tax-free shopping will lead airports to bear massive losses, putting the jobs of thousands of employees at risk.
While there are negative consequences, the move will help protect the interest of several local and high street retailers which have fallen victim to tax-free goods being brought back to the UK and sold at a much lower price.
The UK’s exit from the Eurozone implies the end of free movement and flexible work permits for consumers between the regions. According to the new EU-UK Trade and Cooperation Agreement (TCA), “The UK citizens will no longer have the freedom to work, study, start a business or live in the EU. They will need visas for long-term stays in the EU. Border checks will apply, passports will need to be stamped, and EU pet passports will no longer be valid for UK residents.”
Weaker demand and structural adjustments in the economy increases the rate of unemployment. Even if the labour market can adjust relatively quickly, overall, there are likely to be pockets where reallocation is more difficult or slower to achieve, such as in sectors where workers are specialised or may need to re-train in order to move to another job.
The fact that certain types of workers may encounter difficulties in transitioning to new forms of employment could raise their probability of becoming long-term unemployed. For the labour market, even if many workers can move to other sectors after Brexit, they may have to accept a lower wage.
This is an edited extract from the Impact of Brexit on Apparel – Thematic Research report produced by GlobalData Thematic Research.