The new rules that emerged on the back of Brexit are bittersweet for retailers. Brexit has brought in several industry-friendly initiatives such as the return of duty-free shopping on liquor and tobacco between the European Union (EU) and the UK, but it has also brought hostile policies such as the removal of the tax-free allowance for travelers departing the UK.

Listed below are the key retail trends emerging as a result of Brexit, as identified by GlobalData.

Delivery challenges

Navigating the UK’s exit from an inter-connected and highly unified free market is proving difficult for retailers especially in the short-term as they are unable to move goods from one place to another as smoothly as before. Previously, with free movement of goods, customers in Ireland and Scotland could order from a retailer’s UK website and have them delivered. But by January 2021, retailers like John Lewis, TK Maxx, and Debenhams stopped delivering to Northern Ireland due to disruption caused by changes to regulations in the Ireland Protocol.

Border delays caused by checking and excess paperwork also left retailers like Zalando, Amazon and M&S warning customers about delays in delivery and unavailability of some items in Northern Ireland. Retailers such as ASOS and John Lewis stopped taking international orders on their respective UK websites. Similarly, UK customers buying from abroad are now required to pay a ‘handling cost’ for increased freight and paperwork expenses.

Trade disruption

Importing into the UK is now more expensive and takes longer due to custom duties, value-added tax (VAT) and freight charges, and additional paperwork. Retailers’ supply chains face difficulties due to different and sometimes arbitrary standards of export from the UK to EU countries, especially when it comes to definitions of items made in the UK versus those processed in the country and re-exported.

The VAT Retail Export Scheme, which allowed non-EU tourists shopping in-land to claim VAT rebate, has now ended and will likely discourage duty-free spending in the UK by international travellers. Luxury retailers like Selfridges and Burberry expect tourism sales to be diverted to other places in Europe if there is no resolution for the scheme.

Shifting supply chain

Brexit has led retailers to consider moving operations for EU countries to outside of the UK to avoid new taxes and tariffs. This includes obtaining a new business address, opening warehouses and fulfilment centres, and shifting routes for supply chains. ASOS anticipated the difficulties and opened a warehouse in Berlin in 2019 as part of its international expansion strategy to service customers across Europe.

The UK-based direct-to-consumer sports brand Gymshark is looking at international growth by adding distribution centres across Europe to provide uninterrupted services amid Brexit disruptions. In February 2020, it opened a warehouse in Belgium in partnership with logistics company Bleckmann.

Smaller retailers are also making changes. However, they often do not have the capital, capability or in many cases a large enough customer base to warrant building an entire warehouse facility in foreign countries and thus face more difficulties. Also, they may find it difficult to find qualified people to advise on requirements for exporting under the new tariffs and VAT schemes. Partnerships with established logistics and warehousing companies that could look after supply chain operations is a viable solution for small and medium-sized businesses (SMBs).

Bonded warehouses

Bonded warehouses allow companies to import items into the UK and store them without having to immediately pay duties. Though traditionally used to smooth cash flow processes, they are now being considered as an option to avoid double taxation for products imported into the UK to be further sent into Europe. Establishing bonded warehouse space has proved to be a good option for imported products that do not need to be processed.

Fashion retailer Next has been using bonded warehouses since 2018 and has found them especially useful to overcome Brexit disruptions. Superdry is also looking to setup and utilise bonded warehouses for some products in 2021. Retailers may consider outsourcing, or partnership deals to look after the logistics of goods stored in bonded warehouses.

This is an edited extract from the Impact of Brexit on Apparel – Thematic Research report produced by GlobalData Thematic Research.