Impact of Brexit on Wholesale Distribution in the UK

5 min read

Tags: Blog, Demand forecasting, Demand forecasting, Industry news, Industry news, Inventory management, Inventory management, Purchasing & replenishment, Technology, Tips & Tricks

Maggie Bendis   12 September 2016


Brexit UK puzzle piece leaving EU

Index

  1. Aftermath of Brexit
  2. Impact of Brexit on Wholesalers
  3. Riding out the Storm
  4. Getting Ahead of Brexit

Brexit Overview

On June 23rd this year in what has become known as Brexit (from “British Exit”), the United Kingdom (UK) made the decision to leave the European Union (EU).  In a close race, the decision to leave the EU won with 51.9% of votes, while the other 48.1% voted to remain. With this result, the UK must now prepare for the steps to leave the EU. It’s difficult to predict what comes next, especially in terms of how it will affect the UK economy and businesses – including the wholesale distribution industry.

Currently, the UK wholesale industry is an enormous part of the UK economy, bringing in £980 billion in total wholesale turnover and employing over 1 million people with 70,000 of these employed in the food and drink industry alone. Being such a large part of the UK economy, the wholesale industry is set to change in the UK in the coming years following Brexit. The EU, as the world’s largest economy, accounts for 44.6% of the UK’s exports for goods and services and 53.2% of the imports of the same.

In leaving the EU, the UK is relinquishing the benefits that they enjoyed as a member state. The primary benefits of the European Union are international borders open for free movement of people, goods, services, and capital among member states, a large number of supported jobs (it was estimated that 3.1 million British jobs stemmed from UK exports to the EU), increased national security, and greater influence on global topics and issues.

While the UK will have to negotiate new terms for these privileges, they also have the unique opportunity to rebuild their internal structure and their foreign policy as they see fit. The main reasons behind people voting in favor of Brexit were dissatisfaction with a weak economy or status quo, the loss of national autonomy (and subsequent rise of nationalism), and the desire to cut back on immigration, most especially for refugees.

Aftermath of Brexit

The initial economic reaction to Brexit was a steep and sudden drop in the value of sterling, dipping down 11% in two trading days. This drop in currency value means that everything has, for the time being, become more expensive in the UK when measured in euros or dollars. While the currency is still fairly strong, the initial reaction to Brexit involved people pulling out of UK markets and disinvesting – a trend that, some say, can continue into the future due to the uncertainty surrounding the UK market.

This type of downward trend would be especially detrimental to the UK as they have been “one of the top recipients of foreign capital among advanced economies”, according to the Bank of England. Foreign investment is a huge market in the UK for everything from property to goods to financial services – and the supported businesses and jobs that go with them. So, what does this mean for wholesale distributors?

Impact of Brexit on Wholesalers

For the moment, the UK market is on what can only be termed “standby” – companies, industries, and economies throughout the globe are waiting for the next steps of Brexit. In terms of procedure, the next move of the British Parliament would be a vote (which would just be a formality at this point and the UK Prime Minister Theresa May’s Cabinet has deemed it unnecessary) and enacting Article 50 of the EU’s Lisbon Treaty which would begin the 2-year transition of the UK leaving the EU. While the global community waits for these actions, uncertainty reigns within the global economy, and businesses and consumers are erring on the side of caution.

With the UK Wholesale industry totaling to £980 bn, it’s impossible for this market to not take a hit, especially when it comes to UK’s key industries such as mining, construction and property, industry, retail, and automotive. Likewise, commodities such as clothing and luxury goods are predicted to dip in the short-term while consumers adjust to the new economy and regulations.

The wholesale sectors most deeply entrenched in the UK-EU trade – namely, machinery and transport equipment, chemicals, and manufactured goods – are predicted to take a heavy hit until trade agreements can be reached between the UK and EU countries. The balance of trade is predicted to dip down into the negative billions of pounds for these particular sectors while the UK leaves the EU.

Table of Brexit Impact on Wholesale Sectors

Table of Brexit Impact on Wholesale Sectors

Riding out the Storm

Wholesalers in the UK market have a complicated few years ahead of them. Uncertainty is the largest obstacle when it comes to the current global economy and the UK market seems to be composed of uncertainty almost exclusively at the moment. Current predictions are that the majority of the downturn will be from 2015-2017, meaning that businesses need to be prepared for the worst immediately, until the UK government negotiates trade agreements.

The agreements open to the UK in the aftermath of Brexit have two structures: the Swiss Model and the FTA Approach. The Swiss model would include the UK negotiating extensive bilateral agreements for certain sectors within the EU. The FTA Approach is a complete cutoff of the UK from the single market which would force the UK to negotiate individual agreements with different countries. The UK government will be looking to sustain the highest levels of profit for the UK while cutting down on costs for exporting and importing goods.

Until these agreements are settled, however, businesses need to start making changes to optimize their operations. For companies that deal with luxury goods or are dependent on trade with the EU especially, the main goal should be cutting back on costs while retaining employees and sales. A strategic move towards optimizing stock locations and warehouses could be the difference between staying ahead of Brexit and getting lost in the tide for small- to mid-sized wholesalers.

Getting Ahead of Brexit

With EazyStock, wholesale distributors can quickly position themselves ahead of the curve through smarter inventory optimization and management. EazyStock’s cloud-based solution easily connects to existing inventory management systems to helps small- to mid-sized businesses accurately forecast sales, analyze stock trends and data, and even includes seasonality. Not only does EazyStock help you better balance your inventory costs and availability, but it also increases customer satisfaction as everything runs smoothly from order to delivery. Distributors that hand back to wait to see how Brexit unfolds will be left at the mercy of unforeseen political decisions.

Surviving the next few years of Brexit aftermath means making a change to your current systems to make sure you are running at peak levels. Below are 6 ways distributors can use EazyStock to create a competitive advantage:

6 Ways EazyStock Can Help You Beat Brexit
EazyStock Feature Feature Description & Value
Accurate forecasting and trend identification Allows you to pro-actively identify and capitialize on trends in the market, whether that be increased demand for products or quickly reducing levels of stock due to declining demand. This type of functionality is vital for success in a volatile market.
Granular stocking policy control segmented by yearly requests and cost of goods sold Means you can choose what products / lines to keep in stock intelligently, minimizing capital exposure on infrequently requested products.
Ability to simulate the impact of stocking policy changes Allows you to budget in a smart way for increases or decreases in market share. Allows you to work out what is the best way to cut inventory costs, whilst having the minimum impact on availability.
Automated service level optimization Allows you to tell EazyStock your budget and it will work out the maximum possible availability. Good if you need to reduce your investment in inventory.
Ability to analyze demand by customer Enables users to analyse the impact of Brexit on their customer base and to pro-actively take risk mitigating steps.
Exception based working / alerts framework Helps you quickly identify all of the other unanticipated effects of a volatile market which can have a significant effect on your supply chain.

Make sure you come out on top with EazyStock!