What retail can learn from Next’s no-deal Brexit plan

Posted on: 19/12/2018

What retail can learn from Next’s no-deal Brexit plan

What retail can learn from Next’s no-deal Brexit plan

According to a new report from Retail Economics and Squire Patton Boggs, more than a third of retailers admitted that they feel “very under-prepared” for a no-deal scenario and had done “little to no preparation” for a disorderly Brexit.

Of those surveyed:

  • 15% said they were “very prepared”
  • 52% said they had done “some preparation”.

The study surveyed 26 of the UK’s largest retailers with a combined turnover of £100 billion last year.

“It’s awfully concerning that over a third of retailers have done ‘little to no preparation’ or feel ‘very underprepared’ for a hard-Brexit when this scenario could unfold early next year. Leaving the EU without a deal would give the UK total sovereignty over trade, borders and immigration but would also mean the immediate emergence of new checks and costs at the border for trade with the EU.” Retail Economics chief executive Richard Lim said.

A bit of turbulence, but I’m sure the sector – and the country – will get over quickly if we decide on a no-deal Brexit.

Click here for more information on the report from Retail Economics and Squire Patton Boggs.

What retail can learn from Next’s no-deal Brexit plan

Next is the first fashion retailer to make public the preparations it has made in the event of a no-deal Brexit.

They said that although departing the European Union without a free trade agreement and managed transition period is not its preferred outcome, it is well prepared to ensure business continues as usual.

Next recognised there would be minimal additional administrative costs. As long as ports and customs procedures are ready for any changes – and tariff rates are adjusted to make sure consumer prices can stay the same – then it does not envisage any serious impediments to future business.

Tariffs 

  • Next has looked ahead to the possibility the UK will need to lower overall tax rates with countries such as China. They highlighted that the UK already has workable trading arrangements with many of the countries it does a significant amount of business through.
  • Currently, Next imports 53% of its total stock from countries benefiting from the Generalised System of Preferences (GSP). The GSP is a tariff system that provides exemptions from the more general rules of the World Trade Organization when trading with developing countries. The government has indicated that it will replicate these rates for countries the UK already shares such agreements, while further noting it intends to seek continuity in respect of the UK’s current trade relationships with the EU.
  • Next imports 10% of its current stock from the EU and Turkey, which is in a customs union with the EU. In the worst case scenario, Next assumed that the UK would revert to rates at an average cost of 11.8% on clothing and footwear if it leaves the EU without a free trade agreement. In such a situation, it is likely the UK would continue to trade with countries such as France, Germany and Bulgaria on the reciprocal basis that neither levies fees against the other on imported or exported goods.

Additional costs of bringing EU stock into the UK

  • Next does not anticipate that any additional data would be needed to import goods from the EU in any future scenario, since the current declarations required are already of a high standard.
  • The company estimates that the increase in the volume of declarations, for which additional payments for customs clearance charges would be levied, will cost around £100,000.

Delays at ports

  • Next says it is not yet clear if HMRC’s systems and personnel are sufficiently prepared to manage the potential increase in workload and data capture. The retailer said the indirect risk to operations running smoothly at the UK’s ports represents the largest risk posed by Brexit.
  • However, it said, there is “no reason” why goods should not continue to flow relatively freely. Next proposed three potential measures that it believes would reduce the volume of work required at ports and airports:
  1. Temporarily raise import thresholds for goods bought into the UK by small importers, so that they can avoid customs procedures.
  2. Introduce self-assessment tax procedures similar to VAT for customs tariffs and duties, to alleviate pressure on UK ports.
  3. Extend temporary “Trusted Trader” status to more operators through a simplified application process, allowing checks on vehicles to take place inland or at a later date, rather than at ports

Import duties

  • There is a theoretical risk that stock imported to the UK could be liable for double duty if it is subsequently exported. This is because the consumer would be importing the goods at selling price into the EU from outside the free trade area. Goods sold to EU customers from the UK incur duties on their selling prices, although this is waived for orders beneath €150.
  • Next has set up a German company in anticipation of this potential risk, so that EU customers can be sent their goods from a German warehouse.
  • In order to minimise cost increases to consumers in the longer term, Next intends to increase the volume of its EU business done through Germany.
  • As a result of the risk of volatility in the value of sterling, Next has insured itself against any cost-price changes, that may arise if value of the pound drops.

Click here to read the article from Drapers from which I took inspiration for this content.

To discuss this further, you can email me on danny@refind.co.uk.

re:find help businesses find the talent they need to deliver transformational change.  Clients call us when they need change to happen quickly and effectively. We are Executive Search and Interim Search specialists.

Click here to read about what we do specifically in the retail sector.