How the fallout from the UK’s Brexit vote may impact online retailers

Chloë Thomas

11th Jul 2016

At the end of June the UK population voted in a referendum on whether or not to leave the European Union (EU). The vote went 52 per cent to 48 per cent in favour of leaving.

What’s the current situation?
The referendum was an ‘advisory’ referendum which means in itself it doesn’t change a thing about the UK’s relationship with the EU. Had the vote been to remain it would be business as usual. However the leave vote has thrown much, some might say everything, into a state of uncertainty and confusion. Two weeks on and that’s where we still are.

In fact the levels of uncertainty have got bigger since the morning after the vote. Both the two main political parties in the UK are now embroiled in bitter (some might say childish) leadership elections. The leaders of the referendum’s Leave campaign have both taken a step back from their arguments in support of leave and their public roles. Until the Conservative party chooses their new leader nothing is going to happen about actually exiting the EU. The EU appears to be even more shaken up by it all than the UK, and the rest of the world watches on waiting to see what will happen.

Until someone takes charge (the new Conservative party leader) and decides what ‘brexit’ means in reality we’re stuck in a world of confusion and uncertainty. Everyone has an opinion, there are 100s of theories including plots and secret plans, the only certain thing is that it’s not ending anytime soon. Anyone who’s studied economics or the markets knows that uncertainty is about the worst thing that can happen to a capitalist economy, and that’s what we’re seeing in the currency, stock and other markets.

The impact so far
The problem with protracted periods of uncertainty, coupled with sensationalist, miserable, Armageddon-style news reporting is that consumers get nervous too and stop spending. Who can blame them?! Best to hold onto what you’ve got, stock pile the cash and don’t commit to anything you don’t truly need.

The short term impact is already being seen by UK retailers, both conversion rates and sales have plummeted in some product categories. Rather like they did in the run up to last year’s general election when no-one knew who was going to win. This drop off is not going to happen to everyone – but if you’re selling ‘wants’ rather than ‘needs’ you’re really going to notice it. Within e-commerce I’m seeing the novelty products and holiday markets being hit hardest. The people I trust the most at reading the economy and politics at times like these are suggesting the period of mega-uncertainty should be over by the end of July, or at the latest September.

But while the new Conservative party leader (and therefore Prime Minister) will be in place on the September 9, it could be years before exit is complete. First they have to declare Article 50 (format notice to leave the EU), then it could easily be two years before the negotiations are complete, and if they chose to go for a complete exit it will probably be more like five years before the dust settles.

You can see why there’s so much uncertainty in the air!

The short term impact on online retailers
What can you do to protect your business during the next few months?

It is going to be a challenging period from now until September because now the Conservative leadership race is down to a choice between Theresa May and Angela Leadsom nothing real can happen until one of them is declared leader in September. Hopefully that means that things will become clearer over the coming weeks and the uncertainty levels will drop. Things should be less up and down at least.

During this period – keep a close eye on your stats and cut back marketing spend as necessary. I’d personally bet on this period being a matter of weeks rather than months, so save your funds for when things pick up. And keep watching for when your conversion rates increase again!

The currency markets are going to fluctuate a fair bit during this time as well – so be careful with the timing of purchases of merchandise and services from other countries.

Monitor customer behaviour from different countries closely – if you’re a UK-based retailer you may see sales to overseas customers increase as they take advantage of the exchange rates, this might be the opportunity to make up for the lower UK sales. I’ve just got back from London and there are definitely more Americans about – with lots of shopping bags!

If you’re an overseas retailer you should keep a close eye on your £ price margins you may need to increase prices to make it worth selling in the UK, or you might want to focus on other territories in the short term.

Try not to pay too much attention to the media, don’t do anything too drastic, and wait for some concrete news to come out from September 9 onwards – what’s actually going to happen rather than the endless theorising that’s going on.

The potential long term impact
This really could be anything, and depends on a LOT of factors including who becomes the leader of the Conservative party, who gets appointed to do the negotiations with the EU, how much we exit. There are schools of thought that if Theresa May gets in it could all be over within a few weeks of the Article 50 declaration and we’d go back to pretty close to business as usual. But who knows.

If the UK ends up doing a full exit then everything might change.

Pretty much every area of UK legislation is linked to EU legislation, which means all those post-exit gaps will need to be filled, which means it all has to go through parliament. That’s probably good news for online retail as the government sees e-commerce as a key opportunity to increase overseas trade, so the chances are it’ll become a little easier in areas like the cookie laws, data privacy, etc etc.

Financially we’ll just have to see what happens to the markets. But the cost of government is going to increase as the areas and money supplied by Europe will need to be covered to some extent. That means tax is probably going to increase, which means consumers will have less to spend.

Trade agreements between the UK and the rest of the world will also all need to be renegotiated because, again, they are impacted by European legislation at the moment. That will probably take years, with the biggest export markets taking priority.

Everything might change, or it might all be over and back to normal within weeks.

Let’s hope it’s the latter and then we can all get back to focusing full time on how best to serve our customers and get them to buy more from us.

For now the long term is something we can’t impact, so focus on getting your business to September in the best possible shape – with happy customers, and some cash in the bank.