On January 31, 2020, when Brexit came into force it was expected to ease trade relations between the Europe and the UK. But, one month since the conclusion of the trade deal, things are far from smooth for luxury brands in both regions. As a Vogue Business reports shows, 20 of 57 luxury brands that operate in both UK and Europe face delays in product deliveries. Additionally, customers are being burdened with unexpected duties and taxes on their products. Brands are being taxed for product returns, affecting their profit margins. Luxury firms like the London department store Fortnum & Mason and Kate Spade New York, are being forced to suspend sales to Europe, until things work out.
Increase in courier charges and import duties
Consultants and industry experts expect the situation to improve soon. However, they believe, Brexit has made trade between the two regions more costly. Simon Cotton, CEO, Jonhstons of Elgin says, it has increased courier charges between the two regions with firms charging over £4.50 for a parcel delivery between the UK and EU alongwith potential additional administrative costs. UK companies sourcing their products from outside Europe have to pay a duty on import of products besides an extra charge for exporting them. These products can achieve a tariff-free status only if they fulfill the complicated rules of origin, adds Aruni Mukherjee, Director-Indirect Tax, KPMG UK.
Troubled by this, retailers like John Lewis have temporarily halted exports to Europe while others have declined to pay the extra duties or taxes. Amazon has withdrawn its products from the Northern Ireland market though retailers like Robert Ettinger, CEO, of namesake brand has received several inquiries from brands for making products in the UK.
Product returns and trade shows
Besides being burdened with extra duties and taxes, retailers also face additional charges on product returns by customers. Post Brexit, a product returned by a European customer to a UK brand and vice versa attracts additional duties and taxes even the brand has already paid a duty while shipping the product. UK government advisors have recommended splitting the supply chain into two parts and handling shipments and returns separately with the UK and EU. However, such a solution is not feasible for smaller businesses like the womenswear brand Cefinn.
According to Adam Mansell, CEO, UK Fashion & Textile Association (UKFT), Brexit may also lead to an increase in freight levels once stores in the UK reopen, and brands move through stock imported before Christmas. Though European brands have not increased the average price of goods in their British online stores, their costs are eventually likely to increase as Mastercard plans to increase its fees for customers using a UK card to buy a product from an EU retailer, says data from BenchMarque by Deloitte.
The UK fashion industry and retail sector is yet to experience the full effects of post Brexit laws like the government’s abolition of its VAT (Value-Added Tax) retail export scheme. It may face further challenges post pandemic in the form of extra costs that retailers may have to bear for showcasing their products at European trade shows. The future for retailers certainly seems challenging.