What effects will Brexit have on ecommerce?

Brexit and ecommerce – Will the position of the United Kingdom being the “online gate of Europe” waver?



The British decided in a referendum to leave the European Union, surprising even themselves with that, not to mention the shock it caused to the markets.

The first and most obvious effect of Brexit was the fall of the British pound. The money of the British suddenly crashed so deep against the US dollar where it had not been the previous 30 years and it also suffered severe losses against the euro.

This, of course, may be a good thing, mainly for the customers within the European Union: all of a sudden they can buy products at lower prices in the UK online shops, they can take advantage of the chaotic financial situation.

 

British ecommerce stores can even benefit from this

 

Many British estores allow the customers to choose freely in what currency they would like to pay for the selected product, which may be extremely advantageous for the overseas customers in a situation like this.

The online shops selling clothing products are expected to realize significant sales abroad in the next few weeks – at the same time, this effect will not be that strong in case of the electronic devices, because of the differing adapters.

Therefore, European and American customers will profit from purchasing in British ecommerce stores – however, this equally applies to the British customers. Since the pound has weakened compared to the foreign currencies, the prices unchanged in foreign currencies are actually much higher for them – consequently, part of this traffic will shift to the domestic online stores where they can pay in pounds.

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The role of online commerce in the United Kingdom is not insignificant anyway: 14.5% of all purchases is already realized online. Thanks to Brexit this number will most probably increase significantly, mainly due to the mobile searches.

British consumers have been shopping abroad enthusiastically so far and it is quite unlikely that there would be a radical change in that trend (54% have already purchased some sort of a product in a foreign estore) in the long run and at the moment domestic shops may consider the sudden weakening of the pound being a great opportunity.

It is the responsibility of the online stores to communicate to the foreigners in the right way: a lot of consumers would not realize the opportunity by themselves, so it may even be worthwhile building a separate campaign on this, as the inflow of the foreign customers may increase the traffic of a British ecommerce store even many times over.

 

Mobile optimization becomes more important

 

Purchases with smartphones already represent 33% of the total ecommerce traffic in the United Kingdom: this was already 15 billion pounds in 2015. The significance of this is expected to grow further in the second half of this year.

As the British will most probably buy less and at lower prices, according to Business2Community the number of searches launched from mobile devices are expected to grow as they will try to find the most favourable offers. Certainly, product searches nowadays are typically done from smart devices, which is even more valid for the United Kingdom.

Watchful online shops, ones that optimize their pages and content to mobile devices, may realize some extra profit thanks to that trend.

 

The British market will be less easily accessible – for EU firms and customers

 

The United Kingdom has not left the European Union just yet, only the referendum on the issue has been held. The British parliament will still have to pass a law on the withdrawal following that and then the successor of David Cameron will have to start the negotiations on the exit. This will most probably come about this autumn and the negotiations will last at least two years even from then on.

Therefore, there is no such situation for the time being, where delivery or sale of products would be more difficult for the ecommerce stores outside the UK – however, two years from now all this will look completely different, as Ecommerce News also mentions that in its analysis.

The situation may seriously change for the American merchants that can deliver their products under the same conditions anywhere within the EU at the moment – in two years, different conditions will apply when delivering to the British. And since we are talking about the most powerful ecommerce market in the world, this will be a quite significant change.

 

brexit ecommerce effects

 

The British are outstanding in ecommerce from several points of view. According to the researcher Sjoukje Goldmann, studying international ecommerce in Amsterdam, they are among the leading countries in Europe regarding the proportion of estores offering international shipping (50-70%) and regarding the proportion of customers arriving from across the borders (above 30%, compared to the European average of 23.6%) as well.

No matter how favourable it is for those from the continent at the moment to purchase from the British, the proportion of the cross-border customers will most likely significantly decrease in the long run, and if the common market, the free movement of goods will come to an end between the UK and the continent, international shipping to EU countries may also become less significant as it will become more expensive as well.

The companies facing the biggest dilemma are most probably those that have targeted the EU as a whole – including the United Kingdom as well – until now, and who operate supply centres and warehouses both in the UK and on the continent.

They have been in a comfortable position so far because of the free movement of goods, there weren’t any obstacles blocking expansion within the EU – but if the European Union and the United Kingdom will mutually apply customs duty on the products, or even if the customs duty will be implemented again only in one direction, that could cause serious problems to them.

The online advertising market may not be affected heavily by Brexit.

According to L2 consulting company, the digital products, like for example online advertisements or other information products will not be affected by the exit on practically any level whatsoever, as the European Union does not impose customs duty on intangible goods.

 

Those who will lose: online shops in the EU, those selling high-value products, those expanding in the EU

 

With Brexit there will be no shortage of losers either: according to many analysts it is likely that more people will lose on Brexit than those who will be able to benefit from it. In her analysis Grace Caffyn mentions several groups whose position will become more difficult.

It is quite clear that the ecommerce stores in the EU that target the British market with their products will obviously not benefit from this, since the British customers will try to find the products on the domestic market. Their position is further worsened by the fact that their products will be much more expensive not only because of the drop of the pound.

In the long run the pound is expected to somewhat regain its value despite the economic recession, however, in two years the United Kingdom will find itself outside the EU and its common customs territory. This also means that the British may impose customs duty on the products imported from the continent, which would make cross-border purchase for the British even more expensive.

Many online shops will certainly get into price wars in order to catch the British customers who will have started saving money, even though this is never a good choice. Those who rather look for new target markets, try to address their target audience through online channels again, or even those who re-position their products will most probably have better chances.

Higher value products that are typically purchased for a longer period are also expected to become less popular on the British market in the near future. The simple reason for this is that nobody was totally prepared for the withdrawal: nobody expected the victory of Brexit, which is exactly why it is completely unpredictable what kind of consequences it will have on the economy.

Consequently, in these turbulent times, until the situation of the pound is settled, until anyone knows how seriously this will affect the economy and thus the salaries and the prices, the customers will most probably postpone their long-term product purchases involving greater investments.

 

What will Brexit bring? It’s basically unpredictable.

 

Brexit may have winners and losers both in the short and the long run. Since we do not know what results the future negotiations will bring, the best we can do is guessing when it comes to the situation following the negotiations.

In spite of the many pessimistic views, there is a good number of optimistic predictions that say the present situation will not last long and in the long term the market players will find opportunities for growth and development arising mainly from freer commercial and trade relations with other regions of the world – and these will bring benefits on a larger scale to the whole economy of the UK.

We have no idea how much additional bureaucracy the European e-merchants targeting the British market or the British e-merchants targeting the European market will have to struggle with. We do not know if customs duties will be implemented, in which direction and how significant they will be. We do not know what kind of new regulations may be born by then on both sides or how far the UK will lag behind the European common market.

The only thing that is certain that the referendum may seriously upset even the most significant ecommerce market of the continent, and thus influence the power balance in the entire European Union.

The merchants, who actively follow the events, pay attention even to the tiniest changes in international commerce and law, always look for new, promising opportunities, and continuously modify their strategies accordingly instead of waiting are the ones who will most likely benefit from all this.

 

Gábor Imre

Gábor Imre

Digital Marketing Manager

Gábor started working for AionHill as a Magento eCommerce project manager. After 6 years, he joined the restructured Marketing Team. His main responsibilities are content strategy and communications partnership management. Gábor has two kids, likes cooking traditional Hungarian meals and playing strategy and online role playing games.


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