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Country Spotlight: Brexit’s Impact on Cross-Border E-Commerce in the UK

Country Spotlight UK

Europe’s largest e-commerce market, the UK, is a major power in the global digital economy. 82% of Britain’s internet users regularly make e-commerce purchases, a larger proportion than any other country in the European Union. The UK e-commerce market grew by 16% in 2016 to reaching £133 billion, generating over 14% of the country’s total retail sales.

Cross-border e-commerce is very mature in the UK: one out of every five domestic online merchants also sell to foreign markets while more than half of Britain’s online shoppers have bought from international retailers. With this in mind, Brexit could have a major effect on the country’s role as one of the world’s cross-border e-commerce superpowers.

Membership in the EU has been fundamental to the development of international trade and the implications of Britain’s secession from the Union are hard to predict at this early stage.

Though a weak British Pound and a probable increase in tariffs and taxes for goods entering and leaving the country are likely to have a negative impact on cross-border e-commerce, the UK is unlikely to fall from its position as Europe’s most developed digital economy. While it is important for retailers to keep a watchful eye on the Brexit withdrawal process, expected to last the next two years, the UK remains a strong market for cross-border investment.

Unless otherwise noted, figures in this article are sourced from:

British Consumers

  • Population: 63.7 million
  • Internet penetration: 82%
  • Mobile penetration: 130% (This indicates more than one wireless broadband subscription per person. Mobile devices include both cellular phones and tablets)
  • Online shoppers: 46.8 million
  • E-commerce sales: £133 billion (166 billion USD)
  • E-commerce annual growth rate: 16%

Consumers in the UK are among the biggest e-commerce spenders in the world, with an average annual spend of £3,082 (3,846 USD) per shopper, far higher than their European counterparts. British consumers are rapidly embracing m-commerce, with mobile sales showing 56% growth in 2015 compared to personal computer sales growing by only 7%. BI Intelligence predicts that by 2020, mobile sales will account for 45% of all e-commerce sales in the UK.

There is no reliance on domestic payment tools among UK consumers, so payment method preferences create no barriers for international sellers. Credit cards account for 40% of all online transactions, followed by debit cards (35%) and e-wallets (21%). However, as the UK will no longer have to comply with EU Consumer Law, there may be a need for new legislation which could have a negative (albeit temporary) effect on consumer confidence in e-commerce.

Fashion and Sporting Goods are among the most popular product categories in the UK, while the fastest growing categories in 2016 were Accessories (38%), Lingerie (33%) and Gifts (26%).

The most commonly searched product category is Homewares, accounting for one quarter of all online product searches. The most popular search term is ‘washing machine’, with ‘toasters’ and ‘table lamps’ also in the top ten.

The UK is also the western world’s largest market for online alcohol sales. 21% of British consumers have purchased beer, wine or spirits online, easily beating out the global average of 8%.

Drivers and Barriers

Driver: Market Maturity

Consumers in the UK are highly comfortable with shopping online from both domestic and international retailers and are predisposed to using internationally accepted payment methods like credit cards and e-wallets. Retailers who can offer a good product at a good price will find UK consumers ready and willing to make online purchases.

Barrier: Brexit

Though the implications remain hard to define, Brexit has already had many side-effects on e-commerce within the UK, some temporary and some less so. The uncertainty surrounding the UK’s secession from the EU has caused the British Pound to drop in value, which in turn has affected the profits of international merchants selling in the UK, and has caused consumer confidence to waver.

Driver: M-Commerce

Smartphone shopping is becoming the norm in the UK. 54% of all mobile purchases in December 2016 were made on smartphones, with most consumers shopping in their mobile browser rather than in apps. This means that m-commerce in the UK is not as dominated by large app-driven retailers such as Amazon. That’s good news for smaller merchants who may not be ready to invest heavily in a flashy m-commerce app but still want to take advantage of this market.

Barrier: Incumbents

With mature consumers comes mature e-commerce merchants as well. As the third largest e-commerce market in the world, entering the online retail space in the UK is not like catching a rising star. The market is full of savvy established retailers. Cross-border merchants need to have a clear competitive advantage or niche appeal to compete in this market.

UK E-Commerce Facts

  • Largest e-commerce market in Europe.
  • Third-largest e-commerce market in the world (after U.S. and China).
  • Among the biggest e-commerce exporters worldwide.
  • The most popular destination for cross-border online shopping among European consumers.
  • British consumers spend an average of £3,082 (3,846 USD) online per year.
  • The most popular payment methods are credit cards (40%), debit cards (35%) and e-wallets (21%).
  • Popular e-commerce categories include Fashion, Sporting Goods, Homewares and Alcoholic Beverages.
  • Brexit withdrawal process expected to be completed in April 2019.

Despite the uncertainly and anxiety caused by Brexit (and the very real economic effects already being felt), the UK is and will remain one of the most mature and most lucrative e-commerce markets in the world, with British online shoppers spending well above the global average per year. Merchants with a well-developed product and a clear differentiating factor, be it quality, price, innovation, or niche appeal, should have no trouble finding a market among consumers in the UK.

Expanding into a new international market is a risky venture but a very rewarding one if done right. For the latest information about how you can build and maintain a strong e-commerce enterprise and keep it compatible with legislation and buying habits at home and abroad, subscribe to the Payza Blog and follow us on Facebook and Twitter for the latest industry news.