It’s a highly connected world we live in. The decision that UK voters made this June to leave the EU had immediate repercussions for industries and countries, and we’ll continue to feel the effects for the next couple of years as the UK negotiates its exit.
So what does Brexit mean for Amazon Sellers?
Many Amazon Sellers in the US have been looking to the UK marketplace as a new channel of growth for their ecommerce business. Likewise, UK companies have been expanding their revenue by launching their brands on Amazon.com.
With cross-border sales making up an increasing amount of ecommerce sales in the future, it’s necessary for all brands selling online to be considering the regulatory, logistical, and trade impacts of Brexit. Here’s how we think Brexit will affect Amazon Sellers.
The key points
- The laws will not change for at least two years. It is as easy today to import and export from the U.K. as it was before the vote. Changes to duties, taxation and tariffs will only be known as Brexit plays out
- The immediate impact for Amazon sellers is currency fluctuation. The depreciation of the British pound against other major currencies will have an impact both on UK-based Sellers and those who sell to customers in the UK
- Consider suppliers: will your position be helped or hindered by currency fluctuations?
- There are lessons to learn from Brexit for all sellers, particularly from what big brands do to avoid fallout from such geopolitical events.
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If you’re a UK based Seller and generating a significant portion of sales in British pounds
- If you’re sourcing or manufacturing within the UK, and selling primarily to UK customers, there will be minor changes.
- If you do sell to other EU markets (either as FBA from UK or pan-European) some things may be different. In the immediate term, orders from customers in the EU might increase if you drop your prices due to the drop in the British pound. The exchange rate is in your favor when selling in Dollars or Euros, which can help support a drop in your retail prices.
- You’ll be able to exchange US Dollars for relatively more pounds, so launching or growing your business in the US could be a good strategy.
- Expect some international competitors to exit the market. Companies from the US, EU and other countries will find it more expensive to sell to customers in the UK.
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If you’re a US based Seller currently selling or looking to expand to the UK
- It’s less attractive now to be selling to UK customers because of the exchange rate. There’s continued uncertainty about as-yet unknown changes to duties, taxation and tariffs which will materialize in the next 2 years.
- However, political and economic uncertainty means opportunistic competitors will be ‘turned off’ selling into the UK. If your brand is stable and profitable enough to withstand challenging conditions for the next 2 years, you’ll be able to establish your brand in a historically stable and affluent market while other competitors back out or avoid the challenge
- Look to other EU marketplaces, Germany being the strongest
- Look to Amazon marketplaces in Canada, Japan, Mexico, India for further geographical diversification
- If your suppliers and costs are in British pounds, and you’re selling in pounds, you’ll not be affected by currency fluctuations.
- If your suppliers are outside of the UK, they will be realizing increased costs in selling to you, and/or you’ll be realizing higher purchase prices.
- The UK's decision to leave the EU will not have any immediate effect on UK company law, because of the timeframe of at least 2 years to negotiate the withdrawal. Firm changes in the law are likely to be years in the making.
- Long-term implications are unknown and will be based on the ultimate negotiation terms. It will depend on the structure and the UK’s relationship with other EU countries.
Brexit has some positive and negative effects for online retailers, depending on where your company is located, where most of your customers are, and where your suppliers are.
One lesson we can draw from Brexit so far is that geographical diversification is key in today’s connected economy.
Big brands like clothing retailer H&M source most of their inventory from China, and mostly pay the manufacturers in U.S. dollars. This increases sourcing costs for big brands, and some have announced an intention to raise retail prices at stores in the UK.
Here’s the smart thing that big brands do though - they have buying and hedging arrangements specifically protect against currency fluctuations. H&M’s sourcing contracts which were made in the current fiscal quarter will only affect H&M in the first quarter of next year. They also are careful to expand into international markets which can buffer against economic events in each country. H&M operates in 62 markets around the world, allowing them to capture upside in strong markets, and protect from downside during economic blips.
With Amazon operating in more than 10 international markets, Sellers can diversify their customer base fairly easily. Regardless of where the chips fall for your brand in the current Brexit situation, diversifying your customer base and suppliers is a fundamental lesson to learn.
Bobsled Marketing helps brands to launch and grow their revenue on Amazon’s marketplaces, including the US, UK and EU. Contact us if you’d like to skip the learning curve and have our team of Amazon experts drive results for your company.