Online shopping after Brexit: Higher prices, slower deliveries
Irish consumers will face restricted choices if the UK leaves the EU with no deal
Brexit bill: something that costs €50 to buy and have sent from an Amazon warehouse today could jump to more than €65 once third-country charges are totted up. Photograph: Oli Scarff/Getty
Rocketing prices, customs hold-ups, delivery delays, obstacles to returning unwanted purchases and a dramatic curtailment in the retail choices and rights available to Irish consumers are just some of the problems online shoppers here may be hit with if the UK crashes out of the European Union without a deal in three weeks’ time.
Much of the Brexit debate in Dublin, London, Brussels and other European capitals has focused on if and how a physically hard border on the island of Ireland can be avoided when the United Kingdom says its goodbyes.
But the virtual, online border is likely be one of the earliest signs of what a hard Brexit will look like. It is not going to be pretty. The biggest shock for Irish consumers is likely to be price spikes. Something that costs €500 on a UK-based website today could jump to more than €650 once new taxes and charges are totted up.
We still haven’t a clue what is going to happen. We are doing what we have been doing since the vote in June 2016. We are keeping our fingers crossed
“To be honest, we still haven’t a clue what is going to happen,” says one senior source at one of the biggest online retailers in the UK. “I don’t think anybody does. So for now what we are doing is what we have been doing since the vote in June 2016. We are keeping our fingers crossed.”
“There is going to be a lot of confusion,” says PwC’s director of retail and consumer practice Owen McFeely. “And there are going to be a lot of consumers who won’t understand what is happening when they get a demand for duty and VAT before their goods are released.”
Amazon – the largest player in the online marketplace in the UK – did not respond to this newspaper’s queries about its post-Brexit plans, but it did write to thousands of UK-based sellers that use its platform earlier this year warning them that a no-deal “may temporarily prevent cross-border trade” with Ireland and every other EU country.
The letter asked them to send at least four weeks’ worth of stock to European “fulfilment centres” – the giant warehouses it has dotted around the Continent – so at the very least the site can continue trading as normal in the short term.
What might happen in the slightly longer term is anyone’s guess but, unless a no-deal Brexit can be avoided as the endgame reaches its climax next week, Irish consumers will quickly feel the pain.
Few countries have benefited more from the explosion in online shopping than Ireland; it has given consumers here access to a much wider array of products at sometimes much lower prices.
According to Paypal, Ireland is in the top three countries in the developed world for online shopping, which is worth €5 billion here. As much as 70 per cent of the spending goes abroad, with a huge percentage ending up in the pockets of UK retailers. An Post alone delivers about 14 million parcels from there to here each year.
While uncertainty about what happens next is everywhere, the dangers of a chaotic departure have been flagged for a long time. Not long after British voters decided by a slender majority that they wanted out of the EU, the chairman of the Revenue Commissioners, Niall Cody, told an Oireachtas committee that the decision would have such an impact on online shopping from the UK that “the model will not make sense”.
In simple terms what a no-deal Brexit will mean is that the UK will suddenly become a third country, and that is going to have significant tax implications
He warned that in a hard Brexit scenario – which back in the summer of 2017 still seemed unlikely – an Irish shopper buying from a UK-based business would be treated “exactly the same as if he or she were buying from a US-based business”.
Would that be so bad? The simple answer is yes. As it stands, Irish people who shop with UK-based websites generally pay UK VAT and other taxes and only pay extra for delivery. (Some sites charge Irish taxes to Irish shoppers, but the rates are similar.) But once the UK leaves the EU, hefty import duties and additional VAT will suddenly apply. How much extra will depend on what the products are and their value. A dress with a UK price tag of €200 will climb in price for shoppers in the Republic to €270 when VAT of 23 per cent and duty of 12 per cent are added, while a laptop with a UK price of €1,000 will suddenly cost €1,230 with the addition of VAT.
“In simple terms what a no-deal Brexit will mean is that the UK will suddenly become a third country,” says John O’Loughlin, a customs and trade expert with PwC. Effectively, it will be regarded as being no different in trade terms from China, South Africa or the United States, “and that is going to have significant tax implications”, he warns.
O’Loughlin says many of the more sophisticated retailers in the UK will operate on a “DDP” – delivered duty paid, which means the price paid at checkout is the final price and will include all taxes – but others will leave it to delivery companies here to collect the outstanding taxes before they hand over the goods.
“People will think they are buying something for €1,000, but when it arrives at their home it will actually have cost them €1,230,” O’Loughlin says, “and that will almost immediately create a huge amount of customer dissatisfaction in this country.”
Gerard O’Neill, chairman of the research company Amárach, says: “The best-case scenario – and it is not a particularly good case – is everything will just get kicked further down the road and we will get a delay in the apocalypse of six or nine months. But if we don’t, and if the UK leaves the EU with no deal, then from March 30th what we will see are much longer delivery times and hefty tariffs attached to products.”
O’Neill says that the “flip side is we are likely to see sterling collapsing even more”, which might make products bought from UK-based websites cheaper – as long as the taxes are not attached to them.
O’Neill advises against people buying products online from the UK and hoping they don’t get stopped by Revenue. The tax authorities “in this country and across the EU will be extremely sensitive to products originating from the likes of amazon.co.uk, because the authorities here and across Europe won’t want to see their retailers being undercut by UK retailers as a result of currency devaluations”.
What Irish retailers will be able to say is, if you want your product tomorrow then don’t shop at Amazon or Asos – shop with us
Revenue says it has been “actively engaged” in preparing for all potential Brexit scenarios, including no deal, and if that happens then long-established rules for buying goods from outside the EU will kick in.
An Post is also getting ready for the upheaval. “We have been planning for the possible exit of the UK from the EU for two years, and we have a comprehensive Brexit action plan in place,” its spokeswoman Anna McHugh says.
It has, she adds, been “liaising with the relevant authorities in Ireland, Britain and the EU, including the Government, customs authorities, other logistics companies and industry groups, to make sure we are prepared to deal with whatever type of Brexit comes to pass”.
An Post handles more than 10 million parcels every year from non-EU countries, all of which are made available to customs agents for inspection. “In the event of a hard Brexit, the 14 million parcels we receive annually from the UK will simply join this stream of incoming parcels being presented to customs.”
Once the Brexit outlook “is more certain, we’ll provide an online information and advice hub for personal and business customers. And our post offices will advise on any additional labelling which may be required on items being posted to the UK, as is currently the case for parcels going to the United States. ”
It is not, perhaps, all bad news. The collapse of sterling might offset some of the tax changes, while there could be more opportunities for Irish retailers with effective ecommerce operations to grow, O’Neill says.
“What they will be able to say is, if you want your product tomorrow then don’t shop at Amazon or Asos – shop with us. It could lead to some Irish retailers getting a market-share growth, at least in the short term.”
McFeely agrees and suggests there “is a huge opportunity for Irish retailers who are in the online space. They will have shorter supply lines and will be able to promise Irish consumers next-day delivery, and they won’t have to contend with the same tax implications as sellers based in the UK.”
The Donegal tweed brand Magee 1866 is one Irish retailer that has exploited the potential for ecommerce, and used its digital channels to significantly grow its business; online sales now generate one-fifth of its revenue. Its online sales are growing at 80 per cent a year, and it sells to more than 60 countries – with the UK its biggest overseas market by some margin.
“There are just so many unanswered questions, and right now we are just a couple of weeks away from the deadline and we are still not even close to having any kind of certainty as to what might happen next,” says the company’s head of digital, Dominic Tracey.
Once the UK leaves the EU, the guaranteed protections consumers have when shopping on sites based there may disappear
While Magee has some plans in place to handle a no-deal Brexit in the short term, there is only so much that can be achieved by switching stock from warehouses in one jurisdiction to the other. He says the UK leaving with no deal “would be a disaster” for both jurisdictions and hopes Brexit may still be avoided; failing that, “the best-case scenario would be for a delay, to allow everything to be aligned”.
Higher prices, delivery delays and availability are not the only clouds on the horizon. Once the UK leaves the EU, the guaranteed protections consumers have when shopping on sites based there may disappear. Under EU legislation, consumers have a 14-day cooling-off period during which they can return goods for any reason. They also have the right to a refund for delays or nondelivery, as well as the right to redress in case of faulty goods. But if the UK is no longer covered by EU law, then the existing rules will no longer apply.
McFeely points out that while UK retailers will no longer be subject to EU law and will not have to accept returns from Irish consumers if they choose not to, he can’t envisage a scenario where they will change their policies overnight.
“If I look to April, I don’t see any impact in terms of choice or changed policies, but products will be hit with tariffs and taxes, and, in terms of supply chains, there will be longer delays and bottlenecks and a whole lot more customer dissatisfaction.”
He says businesses that deal with the UK have, in recent days, grown slightly more hopeful that a catastrophe can be avoided. “We have seen more optimism in the last week, and if this coming week the British government’s Brexit deal gets voted down then we might see an extension of article 50, and an extension – even a short-term extension – is better than a crash-out, because businesses are just not ready for Brexit yet.”
O’Neill puts it even more bluntly. “There is a real danger we are either sleepwalking to the edge of the abyss, and not paying attention to what is happening, or we are telling ourselves that what have here is a Y2K situation and that it will be an all-right-on-the-night type of optimism. But it won’t be all right on the night. We are in a lose-lose-lose situation, and there will be no winners.”