28/01/2019

Are you Brexit ready? Retail and Leisure

Retail - Rob Pettigrew

Sections of the retail sector will be among some of the hardest hit by a no-deal Brexit, which, following a challenging Christmas Period and the ever growing expansion of online consumption could produce the “perfect storm” for any struggling business.

According to a recent report over a third of UK retailers have said they’re “under-prepared” for a no-deal Brexit and would incur “significant additional costs” should the UK leave the EU without a deal. We’ve identified three key areas that retailers need to focus on now to help avoid Brexit difficulties.

  1. Supply chains

In the event of a no-deal Brexit the current European Commission position is that goods from the UK entering the EU will be subject to full third country controls. This will inevitably lead to delays and bottlenecks at both UK ports (and the roads leading to and from them) and those in the EU where British goods are shipped to, and the government is predicting “significantly reduced access to short straits” such as Dover and Folkestone for at least 6 months.

So what steps can retailers take?

  • Product Review – use this as an opportunity to review and analyse what you are selling, not all goods will produce the margin you need so consider releasing any loss making goods particularly if the supply chain will be impacted;
  • Network Aware – investigate where your products originate from and how they reach the shop floor, check whether goods can be sourced locally or if alternative products are locally available;
  • Storage – where it is practical to do so, for example with non-perishable goods, investing in additional warehouse space should be considered, be aware that you will not be the only one examining this option so act quickly if this is an option;
  • Trusted Trader – for many companies the post Brexit world will be the first time they have to deal with customs, one option here that may help is signing up for the “trusted trader” scheme. Being registered with HMRC as an “authorised economic operator” (AEO) could help you avoid border queues after Brexit.
  1. Labour

The British Retail Consortium has estimated that EU citizens account for just 6% of the industry’s 170,000 workforce with the majority of these concentrated in warehouse and distribution jobs, however it has been estimated that around 20% of the workers in the leisure sector (the nation’s pubs, restaurants, hotels etc.) are from the EU. With Brexit anticipated to bring an end to freedom of movement employers need to place an immediate focus on their workforce. As a starting point employers in Retail & Leisure need to consider the following matters:

  • Who are my employees – review the number of EU nationals in your workforce and open the dialogue to see whether they will qualify for “settled status” (i.e. if they have been here for five years) and if so whether they are willing to make the necessary application and pay the application fee in time;
  • Recruitment – identify potential gaps should EU employees either not have the required “settled status” or should they choose to leave and consider now what steps can be taken to replace them with UK staff;
  • Up-skilling – what training can be given to your existing UK employees or those from the EU who will have “settled status” to ensure that the loss of key EU staff does not damage your business.
  1. Cash flow

Cash flow is vital for any business and companies need to be aware of the potential impacts Brexit could have on its day to day liquidity. Areas to consider include:

  • VAT – leaving the Single Market will impact VAT payments. Intra-EU trade is currently exempt from VAT payments, but a change to this would see VAT imposed at the border. Whilst the Government has said it wishes to keep VAT procedures as close as possible to the current position however there needs to be a deal in place to achieve this;
  • Potential tariffs – retailers dealings with the rest of the EU currently benefit from tariff free trade, this will change if and when we leave the Single Market. Companies will need to factor in matters such as import and export taxes;
  • Letter of credit – if and when the UK does become a third party country, and is no longer subject to EU jurisdiction, it’s possible that EU companies trading with UK counter-parts will want to see a letter of credit from the UK company’s bank, which of course is only practicable if cash is held in the bank.

For more information on the legal services our Retail and Leisure sector can offer contact Rob Pettigrew on rpettigrew@thursfields.co.uk or call 0121 796 4022

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