Right now, the UK and the EU are in a transitional period. Existing arrangements are in place until December 30, 2020. On January 1, 2021, the UK government will formally leave the EU.
Currently, goods in the UK and other EU countries can be sold without any restrictions. Brexit will change this, complicating selling for UK merchants on Amazon — as well as UK Amazon customers. This will also have a knock-on impact for US Sellers with goods based in the UK.
Amazon has announced that its UK FBA operations will be split from the EU with EFN (European Fulfilment Network) and Pan-European FBA inventory transfers ceasing between the UK and EU.
What exactly happens will depend on what exactly happens with Brexit — preparing for no-deal seems the best advice. This article is about getting ready for change and preparing for most eventualities.
Step 1: Understand what’s changing and what’s staying the same
One bit of good news, domestic UK fulfilment will remain unchanged. Inventory in UK fulfilment centres will still be delivered to UK customers, while stock in Germany, France, Italy, and Spain will still be delivered to customers in Europe.
Likely, if you want to trade in the UK and the EU in 2021, you, like Amazon, will need to split your business. This will have cost implications, and you should evaluate your position in each EU market to gauge the impact on your margins.
One thing you should consider urgently is sending stock to alternative fulfilment centres to protect your Q4 business. Dividing stock means holding more inventory.
EFN has historically been the way-in to cross-border trading for smaller Sellers. If you are in this position, you will need to think long and hard on whether you have the capital or the liquidity for stock splitting to be a viable option.
Sending products directly to fulfilment centres in the UK and the EU should avoid tariffs being imposed twice. You will need to keep a close eye on this — especially in the early days of 2021.
Shipping to two fulfilment centres will mean shipping and storage costs will increase. Although it may not be that drastic. Moving to Pan-European fulfilment can offer a substantial saving over EFN on a per-unit basis.
Although they are currently harmonized, rules on product standards will diverge for EU and UK markets. While specifics are still to be resolved, cross-border shipping post-Brexit is likely to involve additional processes and procedures for customs declarations.
You will need to register your business for VAT in both the EU and the UK to access these marketplaces. This approach means navigating the complications of recording and accounting for VAT in multiple countries.
Step 2: Get a clear picture of your margins
Brexit is going to cost money. There will be loads of extra costs relating to translations, taxes and country-specific dynamics — you need to understand these costs and put them in the context of your own business. Your ability to cope requires a detailed understanding of your margins.
Profitability within markets
To work out an accurate measure of profitability and success when selling on Amazon, you need to look at each market as an entity in its own right. Now will be the time to evaluate:
- The markets you are most successful in — and how you measure that
- The markets you would like to increase your presence in
- Individual markets you could consider a withdrawal from
You need to look at your customers:
- Who are you selling to?
- Where do they live?
- How profitable they are? — especially as cost profiles change.
Pro tip: Thinking about profitability in terms of total customer lifetime value can deliver a longer-term and more powerful perspective — more on that later.
You need to evaluate your markets:
- How competitive is your market?
- Can you increase prices?
- Do you want to pass on extra costs to consumers?
- Are your margins high enough to handle increased costs?
You need to understand your competitors
- Might this actually help your competitive position?
- Are your competitors UK or EU based?
- Will they have logistics problems of their own?
- Will they have higher costs?
Be clear on your objectives
Single ASIN product margin only tells part of a larger story. Profitability comes in numerous guises; these may be harder to measure but provide better insight. You will need to look at what your key objectives are for each market.
- Market share
- Acquisition costs
- Customer lifetime value (CLV)
The importance of CLV in times of change
To truly understand the value of your markets and the customers in them, calculate the Return on Investment (ROI) of each market. Two factors primarily drive this:
- Campaign efficiency based on marketing investment (ACoS)
- Expected market-specific lifetime values (CLV)
Adjusting Break-even ACoS
Using this data, you can approach each sales channel uniquely and adjust your views on customer acquisition, sales, and profitability for each marketplace. Hidden costs will emerge during post-Brexit adjustments and your break-even ACoS will be volatile during this settling down period. Constant analysis of the data and necessary adjustments will become vital during this stage. Looking at that within the context of CLV lets you take a longer-term view of profitability.
If you want to learn more about calculating your break-even ACoS in the context of CLV, check out our blog — How to Calculate Break-Even ACoS: And Why CLV Should Change Your Perspective.
Step 3: Creating a logistical plan
There is no doubt that logistics and fulfilment will be disrupted. Planning for Brexit will be critical to your ongoing success. That’s why the information you have about your margins and markets will help you figure out where best to focus your logistics planning.
Here are the key milestone dates to factor into your plans:
- November 14, 2020: Inventory removal orders for cross-border inventory will stop.
- December 18, 2020: Pan-European FBA inventory transfers will stop between the UK and the EU.
From this point, you will need to send inventory to fulfilment centres in the UK and the EU to maintain your stock.
- December 21, 2020: Cross-Border Fulfilment via EFN and Pan-European FBA will start winding down.
- December 28, 2020: Cross-Border Fulfilment via EFN and Pan-European FBA stops in full.
Inside and outside
If you are an Amazon Seller based on mainland Europe selling to the UK, you will have the same timetable and stock will be treated similarly. If you are a seller from outside Europe, you will also need to split your stock into European mainland stock and UK stock and send it to at least two Amazon FBA locations.
Step 4: Track any changes that occur
During such a period of disruption, you need data. You will need the tools to monitor, analyze and respond to unforeseen changes.
The compression of the selling window means that all of Q4 will be a roller coaster ride. Detailed analysis and actions in Q3 and early Q4 will be vital to making the most of it — and ensuring you have a positive Q1 2021.
Post-Brexit, improving customer analytics and gaining an advantage over your competitors will be vital. Understanding your most loyal customers, their pattern of purchases and how that is changing over time will keep you one step ahead.
- Analyze where and when your products are being bought and who your products are being compared to.
- Use this data to drive your fulfilment, product and broader business decisions,
At Nozzle, we have both the tools and expertise to manage this process for you, or equip you with the power to do it yourself. If you want help planning and executing your new post-Brexit data-driven strategy — get in touch today.