While the trade deal stuck struck with the EU in December 2020 will greatly lessen the impact of Britain’s exit from the single market, UK retailers and consumers will still experience changes to the UK retail landscape in 2021 and beyond.

Most crucially the last-minute deal avoided the prospect of tariffs on all imports and exports, which could have considerably pushed up prices on some items sourced abroad, and particularly those foods not suited to production in our climate. With tariff-free trade largely secured, items such as French cheeses and Romanian manufactured clothing will now remain available to UK consumers, and with only negligible price increases, if any at all.

However, there are still a lot of unknowns around the changes, with a lot of moving parts. The biggest shift is in the administration and paperwork, such as new customs and ‘proof of origins’ declarations, and additional checks on food and livestock. While the largest retailers should be able to ultimately absorb these new ways of operating relatively easily, it will prove a much more noticeable burden for smaller companies, while shipping companies such as FedEx and TNT have said they will levy extra charges of £4.31 on shipments between the EU and UK, to cover the cost of adjusting their
systems.

Exporting business appears to be the most impacted by the new arrangement, due to ‘rules of origin’ procedures treating goods that are brought to Britain and then exported again to the EU largely unchanged as being non-British goods; and therefore subject to tariffs and customs. UK businesses may now need to look at establishing EU subsidies, to circumvent these costs and paperwork.

However, importing could also see some turbulence, impacting supply lines. Food & grocery retailers are particularly in jeopardy of any potential hold-ups causing imported food to go out of date, with four-fifths of food imports coming from the EU. Moreover, retailers within other sectors particularly reliant on seasonality and trends, such as clothing & footwear, health & beauty and homewares, could also yet face being caught out if problems moving to the new arrangement cause products to arrive after their windows of relevance to consumers, as we saw happen to some toy and gift retailers over Christmas, following disruption in the ports.

Indeed, it appears we are set for a period of short-term disruption, as ports, hauliers and businesses adapt to the new systems, which are set to be phased in over the next six months, and cross-channel traffic increases post-Christmas. In terms of stock and supply lines, some UK retailers have expressed cautious optimism that, with the stock buffers and systems they’ve put in place, they do not anticipate any negative impact, with Next, for example, stating ‘we do not anticipate that Brexit will have a material impact on our ability to import and export stock in the year ahead’ as a result of the trade deal. M&S, though, became the first major retailer to warn about new “very complex administrative processes”, which it said will significantly impact its export business.

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Another significant change under the new deal is that all EU retailers selling to the UK now have to pay VAT from the point of sale, rather than at the point of importation, and will have to set up an account with HMRC; something which previously only applied to some businesses. Marketplace platforms, such as Amazon and eBay, will now be liable to collect VAT due from their sellers and send it to HMRC, which they have indicated they will do by deducting from a seller’s earnings.

As with importing, this change will disproportionately impact smaller companies without the scale to absorb the extra costs and paperwork. It is this change that had led some EU-based specialist retailers, such as Dutch Bike Bits and Beer on Web, to stop selling to UK-based consumers. While this will marginally reduce choice and see some prices rising for UK consumers, it means that UK retailers do not have to compete with VAT free imports offered by EU competitors.

In the medium to long term we are likely to see the UK Government both encouraging ‘on-shoring’ and pushing the credentials of suppliers in countries in which it is keen to do more trade, such as China, the US and Commonwealth countries. There may even be incentives and administrative fast tracking introduced to push this, although much will also depend on the political landscapes in these other nations and how keen they are to reciprocate. This may still yet not only change where our products predominantly come from and how much they cost, but, ultimately, the strength and growth of the British economy and, in turn, how much disposable income the average Brit has to spend on shopping.

Finally, one of the biggest issues in the 2016 referendum was the subject of immigration, which is important for UK retailers for two main reasons. Firstly, there were over 170,000 EU nationals working across the retail industry at the time of the referendum in 2016, with the BRC Workforce survey indicating certain geographies, predominantly London and the south, are particularly reliant on EU workers, with distribution employing a higher number of EU nationals than retail stores. If the new points-based immigration restrictions substantially reduces this workforce, retailers may have to look at recruiting more aggressively, paying higher wages and making more use of technology to prevent disruption to their businesses.

Secondly, immigration from the EU has both increased the UK’s population and reduced its average age in recent decades, providing opportunities for retailers. If net immigration is now substantially reduced, the largest retailers in particular will find it more difficult to grow revenues, while an aging population will require retailers to change and adapt their strategies.

With most of the uncertainty of the past four years now put to bed, both UK retailers and consumers can look to the future with renewed stability; but, while the last minute deal may have avoided a disastrous shock to the system, it will still bring plenty of new challenges.