Digital State Consulting, E-commerce SEO agency in Cheshire discusses Brexit and the effect on British E-COMM business.

Brexit and what it means for ecommerce in the UK.

Prior to the start of this month, where the dotted line was signed to trigger the UK’s departure from the EU, the UK effectively sat in a Digital Single Market with the rest of Europe.

Now that this bubble has burst, businesses in the UK are left with a new reality to forge through unfamiliar market conditions and political landscapes.

This is a brief article to discuss how the ecommerce market is likely to evolve, and how Ecommerce SEO will evolve, over these potentially turbulent times and how businesses can be best placed in this new era for digital marketing in the UK.

Some numbers to put the words around ecomm into context:

  • Ecommerce is the fastest growing market in Europe, and the US.1
  • Expected value of online sales in 2017 and 2018 at £230bn (+14.2%) and £262bn (+13.8%) respectively.
  • In 2016, the European ecommerce market place is led by the UK, Germany and France respectively. Combined, these countries provide 75.1% of the £152bn value of the European market.
  • 70%-80% of all online shopping browsing is conducted through mobile platforms. 23.4% of which is converted into sales in European markets.
  • The UK has the highest proportion of mobile shoppers with 35.6%, followed by Germany (34%) and Sweden (29.6%).
  • The UK ranks second in the list of the share of ecommerce in terms of GDP, at 6.12%. China ranks highest at 7.05% with the highest European country being France at 2.97%. This is with the world average at 3.01%.
What have we seen to date?

The story of Brexit is just beginning. The book starts with the decision of the 52% and the piece of paper to start the process has now been signed, but the remainder will be shaped and written over time.

To date, Brexit has certainly been a favourite with news channels, and rightly so. Markets have seen huge levels of distortions, lurches and uncertainty with the possibility of recession plausible. Speaking to DSC, E-commerce SEO agency in Cheshire could help lay plans for online retailing through this year and next.

This uncertainty has caused many in the business community to re-consider their positioning, both physically – with assets on UK soil – and in terms of their business models and customer bases, consequently, Sterling has seen a huge fall in its value causing headaches for those importing, but boosting the position of those exporting.

With the very nature of online businesses and their involvement in multiple cross-border markets, the value of the currency is causing huge swings in profitability and hence any form of market stability may well be seen as a welcome relief for this portion of the market.

Furthermore, with the rumours of a break up the United Kingdom and issues raised around citizenship and eligibility to work in the country, it’s critical that the skilled labour required for this software and knowledge based industry is not only retained, but valued. Brexitieers argue this is good for domestic jobs, but not if the vacuum in vacancies can’t be filled and the capability of the ecommerce markets reinforced.

The ecommerce market:

A study by Payvision provides an interesting starting point to access the impact from Brexit on the UK ecommerce market. They note that UK consumers are at the top of the list of likely cross-border shoppers; roughly 54% make at least one foreign purchase. Clearly, from a fall in the Pound’s value, UK consumers have been restricted as their purchasing power has been eroded from the same point a year ago.

But if you’re a European, the reverse is true; relative purchasing power has increased and it becomes significantly cheaper to buy UK goods and visit the UK. The question is whether this increase in production costs of importing components is offset by the benefits from greater exporting volumes and higher volumes of tourists.

A secondary impact for the ecommerce industry is that the EU market – for many years – has provided a regulatory framework for UK produced goods and services to adhere to.

With Brexit firmly on the horizon, a divergence in regulations poses several challenges. UK firms will have to follow EU dictated regulations to export to the Single Market, but without the UK contributing to how the legislative space is shaped.

It’s possible that some larger retailers will be able to absorb costs in adapting, but for many a rise in trade costs may have serious implications because of the threat of tariffs, quotas and bureaucracy that may well be invoked.

Short term spikes in trade costs may be overcome but, if it transpires that the longer trend is that of higher costs to export to EU markets, smaller firms may struggle to survive as they don’t have the economies of scale to shield themselves.

Federation of Small Businesses

Mike Cherry, the National Chairman of the Federation of Small Businesses, has outlined that the top priority for small businesses at the advent of leaving the EU is to remain part of the Single Market and for this access to be simple. 63% of this segment of businesses consider the access to be “key” to their success and will be closely watching as the negotiations and tangible outcomes from Brexit develop.

The ecommerce space is arguably underpinned by the success of supply chains and worldwide logistics, take Amazon Prime as a key example. Trade barriers place significant restrictions on logistics companies.

David Jinks, from ParcelHero, shows how trade relationships work with Switzerland, Poland and Norway where transported goods are subject to customs delays, red-tape and, typically, a 5-9% tariff being added onto their price.

Clearly if this is replicated on the UK and its trade relationship with the Single Market, this will be bad news for exporters. An ecommerce SEO agency is best positioning to help retain and maximise domestic online sales.

As mentioned, long term consumer spending confidence has already been considerably affected and will continue to be. Basic consumer behaviour tells us that consumers often take a conservative stance in the face of uncertainty, particularly regarding the purchase of significant assets or adjustments in spending. Hence, any fall in short term confidence may have longer term implications on the UK economy and the value of the ecommerce market.

The Centre for Retail Research (CRR) concluded that consumer confidence will fall but this will be reflected in a shift of retail spending, rather than a reduction. They acknowledge in a study that consumers will move away from footwear and clothing, whilst increasing spending on experience and intangible product categories, e.g. holidays etc.

This change in composition of expenditure does highlight a consolidation in spending due to uncertainty and that retailers, in physical and online stores, may consider shifting their focus or shifting to other markets with different consumer spending habits.

What benefits can be drawn from all of this?

Online businesses can benefit from new freedoms that the untethering from the European Market provides. It is now widely considered that new supply chains will emerge as companies are able to purchase inputs from cheaper markets – irrespective of any existing relationship with them.

Tariffs and charges that the UK ultimately imposes on countries as result of new trade deals may be lower, or even removed, than what was fixed from being attached to the EU and hence can boost their competitive position on a global level.

This proposed benefit, naturally, needs to be considered alongside any tariffs/charges that are imposed on the UK by the EU or other trading partners. On balance, this may be more of political bargaining outcome than a purely economic one.

Clearly a significant determiner of this is whether the UK remains in the Single Market or not as to the relative tariff levels, but only time will tell how this transpires.

If, however, you’re a retailer (online or otherwise) that sells and buys purely domestically, the impact is likely to be negligible.

In fact, if a void of businesses in the UK emerges as a response to companies upping-roots and moving elsewhere, domestic home-grown progress may be fostered, catalysed and re-invigorated.

To conclude:

Now that the big red button to trigger Article 50 has been pushed, two years of negotiations will take place to determine the UK’s future and businesses will be tested on their ability to evolve and absorb these changes. Digital state, the premier E-commerce SEO agency in Cheshire can help navigate these waters.

A key aspect of clarity required is that of a Soft or Hard Brexit – the difference between these stances are very different. As a Hard Brexit is expected to be the chosen route, this will lead to a full commitment to leaving the Single Market posing significant turmoil, especially long term.

Although this piece has focused on ecommerce and ecommerce SEO, it’s important to remember the bricks and mortar stores that have paved the way for shopping online.

As the CRR outlines, with the current level of grown in the ecommerce space, physical stores will “inevitably reduce” their market share causing policymakers to review how they can support this waning part of the economy.

Looking at the comparable statistics between online sales and retail store sales the picture becomes bleak for those in shops; respectively, growth between 2015-2017 stands at +32% and +3.4%. From the data highlighted in this article, it’s probable to conclude that ecommerce has and will continue to eclipse the physical store trade regardless of wider political factors.

Fundamentally, however, technology is a medium that isn’t constrained by boundaries. In the same way that the UK embraced online technologies, whilst other economies hesitated in their adoptions, the industry will continue to show resilience, adaptability and progress.

As an economy based on services and knowledge based industries, the UK is well placed to benefit from changes in technology and mitigate the potential costs that a manufacturing dominant economy may incur.

It should also be noted that regardless of the macro economic climate, industries on a micro level are becoming ever increasingly competitive, particularly in the ecommerce space.

Market share isn’t easy to gain on a domestic level and firms will continue to have to compete with international rivals and react to market forces regardless of how wider variables shape the business climate.

The picture can’t be viewed as a completely negative one. Leaving the EU and Single Market means that firms can enjoy better margins on their supply chains, list their products on a greater number of market places (Amazon have proven to be very reactive and creative in providing cross-border opportunities) and engage in new relationships with countries around the world free from the constraints of existing trade deals.

Some final thoughts:
I’d like to highlight the following:

The UK ecommerce market shows no sign of slowing; it fact, it shows the very opposite.

We would advise that SME’s talk to their Bank about Currency hedging and the risk mitigation it can provide.

Capitalise on opportunities to market towards European consumer’s given the relative increase in real purchasing power they have in the UK currently.

Finally, make the most of what you’ve got. Ensure sure your website is audited and compliant in all aspects, including: SEO & PPC compliance, usability and conversions rates.

Contact Digital State, E-commerce SEO agency in Cheshire for an informal discussion about your ecomm marketing strategy.