There are few countries in the world that have embraced the shift away from high street trading to online sales so comprehensively as the UK. As an early pioneer of e-commerce, it goes back over 40 years, long before the advent of the world wide web, when English inventor Michael Aldrich found a way to connect a modified domestic TV to a real-time transaction processing computer via a domestic telephone line.
The highly-developed online market that the UK has created is manifest in the dominance that UK e-retailers now have over their European counterparts. New figures show that Britain has become a favourite online supermarket for shoppers across the EU, usurping the US as the second largest market for e-commerce trade in some countries. In Germany and Italy (32 per cent) and Sweden (30 per cent), more shoppers bought goods online from the UK in the last 12 months than they did anywhere else, except China, and the UK is now the third largest market for e-commerce trade in Spain, and the Netherlands.
This is undoubtedly great news for the UK, at least for the immediate future. Yet increasing reliance on European shoppers could also prove to be the downfall of UK e-retailers, as Britain’s decision to leave the EU in two years time, coupled with changes to consumers’ payment preferences add a complex dimension to future cross-border online commerce exports.
The UK’s future trade policy is perhaps the most significant aspect of the Brexit negotiations. According to the British Retail Consortium, the cost of a no-deal scenario on customs would mean annual customs declarations would jump from £55m to £250m and with four million trucks crossing the border between the UK and EU each year. New red tape, border controls and checks would mean delays at ports of up to two to three days for some products, and businesses and consumers would face higher costs, gaps on shelves and product shortages.
This doesn’t just affect the delivery of goods and services to the UK, but the goods that UK e-retailers sell to European consumers every day. For years, British products have attracted global shoppers, but the risk from increased tariffs on goods and services driven by rising shipping costs is that consumers will look elsewhere to make purchases. There are certainly plenty of contenders jostling for the UK’s share of the market.
Businesses that are focused on the UK alone might see a positive boost in the short term. Indeed, while compiling our recent report on online shopping, we found that British shoppers are far less reliant on other EU countries for online goods.
Only around a third (38 per cent) of UK shoppers have bought something online from another country in the past 12 months, and of those, 45 per cent purchased goods from China and 36 per cent from the US. European markets, including Germany, trail far behind.
However, in anticipation of increased distribution costs, there is evidence that some retail businesses are taking steps to increase warehousing capacity outside the UK. Both Next and Asos have announced they are looking to build up warehouse stocks and distribution operations in Germany to service the EU after Brexit.
For tens of thousands of SMEs in the UK, moving operations to the EU is unrealistic. Instead, in a post-Brexit world, UK e-retailers will need to find new ways to drive sales in current EU markets, as well as explore new ones.
Part of the challenge to push British sales in mainland Europe, I believe, stems from an outdated approach to online payment solutions. We already know that Swedes are blazing a trail towards a cashless economy, and online bank payments – those authorised through their online bank – are now the most preferred way to pay for goods online.
However, while consumers in some of the UK’s biggest markets, including Germany and the Nordics, are largely eschewing payment cards for online purchases in favour of internet bank transfers, UK online retailers continue require shoppers to pay using debit or credit cards. It makes little sense when, in Germany, less than one in ten online shoppers have a preference for using debit cards.
It is time for UK e-tailers to allow continental Europeans to pay the way they prefer when buying goods and services from the UK. Businesses will also need to change their strategy to engage other overseas markets, including targeting highly-engaged online shoppers in Australia, New Zealand and South Africa. According to recent research, Australians, for example, follow global fashion trends that are present in the UK market, and they expect fast and free delivery.
Overall, the UK’s online retailers have the capacity to meet the challenges ahead. They also provide a broad range of brands that cannot be purchased elsewhere, and are alive to innovation. But unless they adopt smarter payment methods to drive conversion and target new cross-border markets to increase their customer base, they may be leaning against the wind when the UK leaves the EU.
Oscar Berglund is the chief executive of Swedish fintech company Trustly.