Brexit and the e-commerce market in Europe

by Marlene ten Ham*

According to Ecommerce Europe and the Ecommerce Foundation’s joint 2016 European B2C e-commerce report, the UK is in the lead when it comes to market size (€157.1 billion) and the average spending per e-shopper (€3,625). With about 20% of UK online merchants selling cross-border to the EU and 6.12% of UK GDP coming from online sales, a possible Brexit could have noteworthy negative implications for both the British and the European e-commerce sector. It is therefore understandable that e-commerce interests on both sides of the Channel will be watching events in the European Council unfold with a level anxiety. Of course, the level of impact that Brexit has will depend on what the final outcome of Brexit is. If Britain’s membership of the single market is revoked, which will be the assumed consequence for the purposes of this article, then the ramifications could be dramatic. Who would be most affected by this outcome?

British Consumers

Compared to their European counterparts, British consumers are far less shy to shop online, spending an average of €3,625 in 2015. 36% of British shoppers said last year that they had bought items online in other countries according to a survey. The next biggest spenders after the British were Irish consumers, who spent €500 less on average. A Brexit could therefore have a significant impact on British consumers first and foremost. The loss of access to the European Single Market is likely to entail higher prices for the UK consumers, as the reintroduction of tariffs take their toll. Furthermore, the weakened Pound will also make European prices relatively more expensive, while macroeconomic uncertainty and cuts in interest rates are likely to choke demand. Finally, not being part of the Digital Single Market also means that Commission proposals for harmonized consumer protection, regulations against geo-blocking, and efforts to tackle overpriced and inefficient logistics services would no longer apply to the UK, leaving British consumers more vulnerable to exploitation.

British Retailers

The EU is the UK’s largest trading partner accounting for 45% of its exports and cross-border online shopping is popular in the country. Mr Paul Edwick, Chief Executive of online retailer LucyLocket.com, voiced his intention to rehouse his company within the EU in the wake of Brexit.

“I will not be waiting two years for the politicians to make their decisions,” Mr Edwick said. Having just successfully completed an agreement with French online platforms that will bring his products to France, Mr Edwick sees an opportunity in the crisis: “We have an increasing market presence in the EU, so Brexit simply means that we will change emphasis and orient ourselves towards the continent,” something that he doesn’t anticipate will be overly arduous, given the online nature of his business. “We can relocate to anywhere where there is an internet connection, so maybe I’ll move somewhere between Barcelona and the French border, so we can relive Brexit through Catalonia!” he quipped.

Higher prices

For British online retailers, removal from the European Single Market could spell the resurrection of tariffs on products entering the EU. This means higher prices on British goods, which could choke the high demand coming from other EU countries. Another potential cost to be incorporated, is the necessity to have all imported goods quality controlled on entry into the European Single Market. The principle of Mutual Recognition will no longer apply to British goods on the continent, so they will have to be certified for a European market.

Legislation

Moreover, the upcoming legislation of the Digital Single Market on the e-commerce sector will not apply to the UK. It will notably include simplified rules for the VAT and more transparency on parcel delivery services, among other initiatives, which could make it much easier for online merchants to sell in the EU.

Loss of consumer confidence

Consumer trust is one of the biggest challenges for the e-commerce sector, as it has been recognized as such by more than 20 National e-commerce Associations during the Global Ecommerce Roundtable in May. The UK will not have to comply with EU Consumer Law anymore and will not be able to apply to a pan-European certificate for online shops, such as the Ecommerce Europe Trustmark, which will certainly have a negative impact on consumer trust. 

Digital skills

Lastly, the UK is suffering from a deep shortage of digital talent. While the UK is currently home to ‘Silicon Roundabout’, Europe’s small-scale answer to America’s own Silicon Valley, Mr Edwick noted that a large portion of workers in the UK’s tech industry are not UK citizens. He therefore anticipates that they will take flight with little fuss to the continent post-Brexit. This is a perspective shared by MEP Catherine Stihler (S&D, Scotland), who thinks that leaving the EU could make it more difficult for UK retailers to hire digitally-skilled employees.

European Union

Given the UK’s status as Europe’s most mature single market, the loss of the UK is a setback for European e-commerce. The UK, as one of the most liberal market economies of Europe, has been a proponent of a more liberal approach towards innovative technologies and business models such as online platforms and the sharing economy and has been a major player in the ongoing discussions on the Digital Single Market. The UK currently represents one eight of the Digital Single Market, therefore, without its influence, there could be a less liberal, more conservative turn at policy-making level. The lost access to the Single Market is likely to see this share shrink significantly as demand from EU consumers drops off due to uncertainty surrounding consumer protection, as well as tariff barriers, and possible logistics price-hikes for non-EU delivery services. However, the continued slide in value of the Pound could offset some of the price rises. 

On the effects of Brexit on the EU e-commerce market, Mr Edwick felt that any current trade surplus that the UK enjoys in e-commerce could be lost. On top of the increased administrative costs that UK operations would be subjected to, there could be a loss of work to abroad. Indeed, Mr Edwick has forecast that the test houses whose services he currently employs in the UK would lose out to services on the continent, to ensure that his products would continue to meet European standards. 

However, while there is much cause for pessimism from British people’s decision, one potential upside remains for countries whose e-commerce sectors are on the rise. Indeed, France, Germany, Belgium, Ireland and the Netherlands will be standing ready to snatch a larger share in the wake of Brexit, while UK firms like LucyLocket.com will waste little time waiting for Brexit negotiations to unfold before making their move to the continent. 

*Marlene ten Ham is Secretary General of Ecommerce Europe