International

Consumer Spending and Behavior in a Post-Brexit World

With the official Brexit day fast approaching — March 29, 2019 — many business owners are scrambling to secure their livelihoods. And if the last year or so is any indicator, they’re worried for good reason.

Since the vote, shopping habits have changed drastically in the UK. According to David Milliken at Reuters, household spending growth in 2017 was the weakest it’s been in five years, as consumers and businesses alike are struggling to deal with inflation and Brexit worries.

But the effects that Brexit has had on the economy aren’t limited to Britain and the EU. When the pound dropped drastically after the vote, international shoppers had the opportunity to take advantage of the strength of their currencies with UK retailers such as ASOS. The pound is still relatively weak against the dollar and the euro, which has been a boon to UK-based online retailers.

Businesses and consumers in the UK are facing many economic uncertainties, though the way the Leavers and the Remainers see things is quite different. Tamara Li and colleagues report that Remainers expect Brexit to “lead to a deterioration in both the general situation and their own financial situation,” whereas Leavers have become more optimistic about the economy.

With all of these uncertainties, consumer spending has shifted. Let’s take a look.

Consumer Spending Trends

Businesses have been forced to adapt to a changing landscape. Consumers are shopping differently than they did just five years ago, with many people making the majority of their purchases online. This naturally takes away from foot traffic in brick-and-mortar stores, leading to closures.

January 2017 saw face-to-face spending decrease in the UK, while online spending increased, according to Mark Antipoff of Visa. Since the Brexit vote, the UK has experienced a dramatic year-to-year decline in in-store purchases.

Many people shop online in an effort to save not only time, but to identify deals easier. They spend countless hours shopping online, but this leads to less impulse buying and more savings. Still, careful purchases do add up to a massive market: The Ecommerce Foundation found that the value of eRetail sales in the UK was 15.6 billion euros in 2017 alone.

We find that millennials spend more money online than other age groups, despite having less disposable income than other generations, according to BI Intelligence researcher Cooper Smith. Granted, millennial shoppers do choose physical stores for certain items, like clothing and furniture. But it’s price that most influences whether a millennial makes a purchase, and online shopping lends itself to easy price matching.

Marketing to the millennial (and Gen Z) demographics is one way to cement success in a post-Brexit world. According to QSR Media, millennial shoppers are poised to have more collecting spending power than Baby Boomers from 2018 onward, and a lot of that money gets spent online. Figuring out the eCommerce space has never been more important.

Josie Cox, a business editor at the Independent, noted that 2017 was the worst year for consumer spending that the UK has seen in the last five years. July of 2017 saw a 3.7-percent drop in spending, the first decline in years. But August saw a rebound that was spurred by eCommerce, where spending increased by a whopping 6.5 percent.

With the UK consumer spending rate at a low point, what’s surprising is that UK wages are rising faster than they have in a while, according to Independent editor Ben Chu. In fact, UK wages “were up 2.8 percent in the three months to February on a year earlier,” while the inflation rate hit 2.7 percent. This is the first time that wages increased faster than inflation since the Brexit ruling.

If this continues, UK shoppers may see an increase in their spending power once again.

happy couple carrying bags in shopping mall -- post-Brexit

Brexit Poses Many Challenges for EU Shoppers

While eCommerce is flourishing inside of the UK, it does raise a few issues. Once the UK is separated from EU, all trade agreements are null and void. For EU shoppers, purchasing from the UK will be no different than shopping elsewhere beyond EU borders.

According to Niall Cody, chairman of the Revenue Commissioners in Ireland, Irish consumers buying from shops in the UK could expect longer delivery times and a customs bill, often of an unpredictable amount. “If an Irish shopper buys online from a UK-based business, it will be exactly the same as if he or she were buying from a US-based business,” he said back in 2017. To Irish consumers, that could be a particularly frustrating reality of doing business with the country right next door.

And it doesn’t stop there. Brick-and-mortar stores will be forced to drive their prices up as import taxes make importing manufactured EU goods into the UK costly. The EU trade agreement made trade between the two effortless, but with Brexit the UK will no longer be a part of that agreement. According to Uttoran Sen at Lifehack, this will include price increases on all types of goods.

With prices increasing and both online shopping and brick-and-mortar stores being forced to accommodate, Madeleine Thomson at PwC believes retailers will need to focus more on creating brand loyalty. Consumers will inevitably be looking for the best deals, and those will most likely be found online. The only way to keep consumers interested when there’s a lot of competition in the space is to build loyalty and offer reasons to come back.

According to Leanna Kelley, a writer for CPC Strategy, a few of the reasons shoppers are hesitant to shop online include slow shipping, privacy concerns and a difficult return process. Amit Bhaiya, co-founder of DotcomWeavers, believes brands and businesses that make these processes effortless are bound to succeed in a post-Brexit world. Brands should aim to get their shipments out same-day, which means they need fulfillment companies that can meet these demands. That’s the best way to keep consumers loyal.

eCommerce to Continue to Flourish

The troubles that arose in response to the Brexit vote in 2017 are persisting today. Inflation is still on the rise, and the pound continues to fluctuate. Economist Annabel Fiddes notes that families are still dealing with rising living costs and stagnant wages.

Both Leavers and Remainers are facing hard times in the UK, and economic uncertainty has many business owners nervous. But it’s also driving them to online platforms.

Consumers are becoming more conscious about their spending habits. Rather than buying big-ticket items like furniture and electronics, spending on smaller items is increasing. Regardless of the economy, people like to shop. And in the face of economic troubles, it seems that people are turning to smaller items like health goods.

But even with eCommerce representing the only growing sales channel in the UK, a poll carried out by IT Pro Portal found that eCommerce retailers perceive Brexit as a major challenge to their business in 2018 and 2019.

With that said, international shoppers are not likely to stop ordering from UK-based stores like ASOS as long as they perceive they’re getting the best deal they can. As long as businesses offer the right shipping options and convincing prices, customers will continue to buy online.

A MetaPack consumer research report, which looked at more than 3500 consumers internationally, found that 58 percent of respondents reported Brexit wouldn’t affect their shopping behaviors. A portion of American shoppers, 27 percent, even report that they’ll be spending more money on goods from the UK. The favorable conversation rate, given the weaker pound, seems to be attracting shoppers.

pound -- post-Brexit

A Favorable Brexit Deal Could Turn the Tides for the UK

In the UK, housing costs continue to rise in post-Brexit. The bare necessities are beginning to cost more and more. Alys Key found that housing costs will increase to take up to 30 percent of a families budget by 2020, a 3-percent increase from the current 27 percent. This leaves less to be spent on consumer goods.

This is looking to be the case for the foreseeable future unless a Brexit deal that is favorable to trade is met. If no deal is met, it would affect every aspect of life in the UK and EU, according to Chris Morris of the BBC. Red tape and border checks will delay shipments between countries by days, causing delivery times to be prolonged and brick-and-mortar stores to have to hike up their prices while having less product.

For UK retailers to succeed in this type of environment, they need to improve the way they ship to other countries like Australia, the United States and Canada, which make up a large portion of their online shopping sales.

In the meantime, eCommerce continues to grow despite impending troubles not only in the UK, but worldwide. It’s a good idea for businesses to invest in getting their products online and shipping internationally.

Images by: jovannig/©123RF Stock Photo, stockbroker/©123RF Stock Photo, johndwilliams/©123RF Stock Photo

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