The post-Brexit developments have made UK fashion houses to become apprehensive about its intricacies. With hidden costs and reverse logistics adding up to the total expenditure, fashion clothing lines feel the heat following Britain’s exit from EU. Now, the delays due to longer transit times are steadily increasing and as a result, most of the EU customers are ready to quit UK fashion brands. Moreover, the additional costs associated with VAT and tariff pose another threat ultimately forcing EU customers ready to call it quits. The additional charges and the escalating levels of uncertainty surrounding the payments make them reluctant to go for UK brands, even though they are not fully disclosing the concerns behind their behaviour.
In order to reduce the interference and improve the smooth flow of trade as usual, similar to post-Brexit period, the UK and EU has arrived upon an agreement that transactions below €150 do not attract duty under any circumstances. Nevertheless, this exemption doesn’t benefit premium and luxurious brands and therefore these fashion houses bear the brunt. Many forwarding businesses say that it’s difficult to comprehend the VAT and duty. More importantly, the value decides if the shipper has to pay VAT at source. In case if it is above the limit, customers have to pay the VAT and duty directly from their side. Also, admin fees have been charged even though freight is being prepaid, which further adds up to the hidden costs.
Now, this has paved way to another requirement that the UK businesses selling their products to Europe and products sold in the UK by businesses in EU requires representation.
According to the Managing Director of PFS Europe, Christophe Pecoraro, “A specific set-up can be put in place to avoid having the consumer paying the VAT and the duties with cross-border, a DDP solution [delivery duties paid]. But this requires some specific assumptions that most retailers don’t have yet, like whether a company is VAT registered.”
He added that coupled with the hidden additional costs and the reluctance of customers towards cross-border trade made the ‘returns’ “more complicated than ever.”
Before Brexit, the online shopping returns were around three to seven times greater compared to those from brick-and-mortar shops. Needless to say, returns on apparels were the highest among all the products. With post-Brexit changes taking place and the costs in terms of VAT and duty to be paid for couriers by customers, it escalates the fear of unprecedented returns leading to reverse logistics.
Mr. Pecoraro continues, “Sometimes consumers don’t know how to return the product, or they may not follow the proper procedure, assuming it is properly laid out. If they are confused, they contact customer service centres, but if the procedure is not properly defined, this will be fruitless- reverse logistics is a mess.”
Mr. Kenneth Mackenzie, Director of Scottish fashion brand 6876 opines that the reverse logistics implies the anarchy exists in the market. And both Mr. Mackenzie and Mr. Pecoraro say that refunds on duty paid only accelerate this state of confusion and disorder. The latter also suggests a solution to address the problem by relying on a multi-nodal approach facilitating the fulfilment of EU and the UK orders domestically. “We have been handling reverse logistics locally in the UK, through fulfilment centres, which creates a multi-node point in the UK, and we can then check this stock for future customers, only after which do we turn to EU stockpiles.”
Albeit, Mr. MacKenzie said that chances are not likely that brands accept this concept.
“UK brands manufacturing or sourcing products in the EU or rest of the world will have only one logical path, which is to set up a distribution centre and distribute throughout the EU. Then they will have only one real hassle, which is, ironically, shipping into their own country, where product by nature of all the extra costs/duties will be more expensive. The result is UK jobs will be lost as the distribution centres are moved into the EU, leaving UK customers paying more for a UK brand which is frankly bizarre; the issues are endless and this government has been negligent, unqualified and willfully deceitful in its actions.”