As the process of Brexit unfolds, Ecommerce Europe will be closely following events in order to assess what the likely impact for the e-commerce sector in Europe will be. With this in mind, we conducted an interview with Paul Edwick, the Chief Executive of Lucy Locket, a UK-based SME selling mainly children’s toys and dressing up equipment online and Company Member of Ecommerce Europe. Mr Edwick gave his perspective on the likely impact of Brexit on his business and the e-commerce sector more broadly, as well as his analysis for what the best approach would be for the UK government and EU officials to take.
Impact of Brexit on e-commerce
The UK is currently the most mature e-commerce market in Europe and a front-runner in the digital economy. According to Ecommerce Europe and the Ecommerce Foundation’s joint 2016 European B2C e-commerce report, the UK has the largest e-commerce market (€157.1 billion) and the highest average spending per e-shopper (€3,625) in Europe. Furthermore, the EU is the UK’s largest trading partner accounting for 45% of its exports and cross-border online shopping is relatively widespread. Many UK-based companies are heavily linked to the EU and impacted by its legislation. Lucy Locket, for instance, does more than 50% of its business with other EU Member States. Since the referendum Mr. Paul Edwick has been working, like many other businesses, to prepare his business for the consequences of Brexit.
This task is made more difficult by the ongoing uncertainty around what Brexit will actually mean for businesses. If we use the example of regulations governing children’s toys, if, in the aftermath of Brexit, either the UK or the EU adopts new regulations in this area, we can wonder what will be the framework for sales between the two? If the UK and EU regulatory frameworks diverge, the result would be falling consumer choice and higher prices in the UK, as EU-27 firms choose not to target the UK market. For Mr Edwick it is clear that there is a very real risk of diminished trade between the UK and the EU’s single market, which could do serious economic damage.
Despite this, so far, Mr. Edwick has not perceived a very large impact on his business as a result of Brexit. However, he cautioned against those who would take such news as an indication of the robustness of the British economy, arguing that the economic shocks lie ahead, as Brexit is actually enacted. One area in which there has already been an impact is in the dramatic fall in the value of the pound. In terms of how this has impacted his business, Mr Edwick stated that, given that he mainly imports constituent parts from the US, the fall in the pound had hurt him there, but that this had been compensated by an increase in the volume of sales to the Eurozone, given the relative cheapness of his products to Eurozone consumers.
On the possibility of the UK economy entering a recession as a result of Brexit, Mr. Edwick characterized this as almost inevitable, although he does not anticipate an economic catastrophe on the scale that many on the remain side warned of during the referendum campaign. He emphasized that the economic impact will not be restricted to the UK, but will also hurt the EU, given the importance of the UK to the wider European economy, in particular in the e-commerce sector.
The UK as a free trade powerhouse?
Secretary of State for International Trade, Liam Fox, has argued that Brexit provides an opportunity for the UK to quickly conclude free trade agreements with non-EU Member States, a notion that was dismissed by Mr Edwick. Instead, according to him, Brexit would have little impact on how he does business with non-EU countries, whilst at the same time making it more difficult to do business with EU countries.
“Brexit doesn’t bring anything, it just takes things away”
Freedom of movement was one of the key issues on which the referendum campaign in the UK was fought and is the single most pressing obstacle to the UK remaining in the single market. Mr. Edwick stressed that the IT sector has benefited greatly from freedom of movement, and will suffer serious skills shortages without it. He referred in particular to those who provide software that is essential to e-commerce, and argued that this is an exceptionally mobile and international workforce, and one that will be greatly undermined by restrictions on freedom of movement. Mr. Edwick criticized the British government’s fixation on immigration, and in particular the continued focus within the government on reducing net migration to the tens of thousands, a goal he described as an arbitrary figure.
An ideal Brexit?
Mr Edwick, echoing many online merchants, described his ideal Brexit as one in which the UK remained a member of the EU’s single market. However, for Mr. Edwick, this seems politically unlikely. He was critical of the early negotiating signals from both the UK government and EU officials, arguing that both had adopted an overly confrontational style that was mutually damaging. Of British leaders, he thinks Prime Minister Theresa May and her cabinet of operating in an overly ambitious and unrealistic way, while he criticizes EU leaders such European Commission President Jean-Claude Juncker and European Parliament President Martin Schulz as having adopted an overly punitive approach towards the UK.
Given this rather gloomy outlook, Mr. Edwick is considering bold measures in order to protect the health of his business. He will seek to expand the share of his business coming from the US, Australia and Japan in order to shield himself from the negative consequences of falling consumption in the UK and the EU-27. Most extreme of all, he is considering incorporating his company in Ireland in order to keep it inside the single market even as the UK exits. This move reflects just how seriously Mr. Edwick assesses the impact of Brexit on his business to be, and demonstrates the possibility that it could have profound effects on the structure of the British economy, if other business owners make similar decisions.
The details of the Brexit settlement remain unknown, but there is growing evidence that the outcome will be a ‘hard’ Brexit, with the UK leaving the single market. Such a move risks causing an economic shock that will force e-commerce SMEs to take bold measures in order to mitigate the damage to their business.