The popularity of online shopping was already growing at an impressive rate – and then the Coronavirus pandemic hit, and online sales sky-rocketed exponentially across the globe, particularly in the UK. Since then, online shopping has undeniably become the norm for most consumers.
The result of this is that the UK has one of the most advanced e-commerce markets in Europe. In fact, in 2020, UK businesses saw a 57% increase in global e-commerce sales and were ranked the third largest e-commerce market in Europe.
The importance of the e-commerce market has not lessened since 2020, and there are estimated to be nearly 60 million e-commerce users in the UK today. This is perhaps why the industry was valued at £182.9 billion in 2021, with e-commerce sales expected to make up over one-third (36.3%) of total retail sales in 2022.
But despite the importance and seemingly huge growth of the industry, the last couple of years have not been plain sailing for e-commerce businesses. Brexit, which came into effect on 31st January 2020, meant that the UK is no longer European Union (EU) or the European Economic Area (EEA).
The wake of Brexit was not easy, and over the last two years, this has had an impact on the UK e-commerce industry. However, negotiations are ongoing, and there is hope that new trading conditions will start to bed down and things will improve in the near future.
That being said, let’s now take a look at the importance of UK/EU cross-border retail and the different ways in which Brexit has affected UK e-commerce businesses.
The importance of a UK and EU cross-border flow
Brexit has been a uniquely disruptive force across global markets, particularly in the months that immediately followed the UK’s exit. However, the impact that this has had on intra-European trade is by far the most significant.
The European e-commerce market is huge and growing at a rapid rate, and the UK has been a big driving force behind this over recent years, and vice versa. In fact, data from Codept revealed that in 2019, UK-based e-commerce businesses generated £2.8 billion from EU-based orders.
This highlights the importance that simple cross-border order flows played for both the UK and EU e-commerce industries. A flow which has been disrupted by Brexit.
Trade fell post-Brexit
Throughout the pandemic, the world as a whole saw e-commerce sales spike and an increased reliance on online shopping. However, the immediate aftermath of the UK’s exit from the EU was a quick and large drop in cross-border trading.
This was a result of the new Brexit-related regulations and rising costs. In fact, the aforementioned data from Codept found that the first-month post-Brexit saw the UK’s total exports to the EU fall by a staggering 40.7%, that’s the equivalent of £5.6 billion. Imports from the EU also declined by 28.8%.
This proves that many UK e-commerce businesses were cutting back on importing and exporting to the EU, costing them sales and revenue as a result. This was largely due to the excessive new charges, making it no longer cost-effective to ship to these regions.
Stock and inventory also saw a decline
And this was not the only issue. Data from idealo.co.uk, one of Europe’s leading price comparison sites, found that the inventory of retailers has dropped by 20% since 2020. This means that many e-commerce businesses are left without adequate stock or are struggling to get the goods or suppliers they need for their business.
This is making it difficult for those e-commerce shops to fill out stock itineraries and fulfil existing orders.
Delivery delays of up to several days disrupt e-commerce
As well as product shortages, another one of the most significant impacts of Brexit on UK e-commerce businesses was the huge delays in shipping times and increase in shipping costs. There were multiple aspects at play here, one being that shipping delays further damaged the ability to get access to goods and materials.
However, another major issue was the slower delivery times when it came to getting goods out to consumers. Today’s consumers are more impatient than ever, and they were not pleased about having to wait days, and in some cases weeks, for their orders to reach them. This can have a very damaging impact on a brand’s reputation.
This happened as a result of the end of the free movement of people and trade between the UK and EU. This meant much stricter customs rules and border checks, as well as mountains of paperwork were put in place, which created a slower process and a huge backlog of deliveries needing to be checked. This had a knock-on effect on both sides of the Channel.
The final hurdle that e-commerce businesses had to navigate was staff shortages due to Brexit. As a result of fewer foreign workers being able to enter the country or obtain a working visa, there was a massive shortage of delivery drivers, particularly HGV drivers who would transport huge amounts of goods across the borders.
This meant that companies were in competition to offer the most competitive salaries to the fewer workers that were available in warehouses and delivery companies. For those e-commerce businesses that couldn’t offer top dollar, warehouse and delivery staff were very hard to come by, causing further delays to shipping and deliveries.
Changes to VAT rules
Last but not least, changing VAT rules have created further issues for e-commerce businesses as all goods crossing the border are now deemed imports and exports and are therefore subject to import VAT.
This VAT is typically 20% of the value of the goods, which makes shipping goods to and from Europe even more expensive for e-commerce businesses. This is having a damaging impact on those already struggling to stay afloat due to rising costs of living.