The UK is leaving the EU single market and customs union. On 1 January 2021, cross-border trade between the UK and the EU will change dramatically. The end of the transition period will have a severe effect on Amazon Sellers who trade cross-border between the UK and Europe.
As the UK approaches the end of the transition period, having formally left the EU earlier this year, Amazon is already communicating what actions need to be taken. Here are some of the ways Brexit will impact companies who sell on Amazon and strategies that you can take to minimize any disruption.
1. Cross-border fulfillment
Amazon has announced that it will be ceasing UK-EU fulfillment through FBA. Sellers won’t be able to use Amazon’s fulfillment network to move products across the UK-EU border, from 31 December 2020.
If you want to trade in the UK and the EU in 2021, you, like Amazon, will need to split your business.
Sellers on multiple EU and UK marketplaces will need to ensure stock levels on both sides of the UK border while meeting all of the associated customs and logistical challenges. For some Sellers, the changes and FBA restrictions will be profound — requiring new fulfillment strategies, squeezed margins, and buy box losses. For others, it’s business as usual with an added layer of complexity for European marketplaces.
Strategies to help:
One thing you should consider urgently to protect your Q4 business is sending stock to alternative fulfillment centers. Dividing stock does mean holding more inventory.
The European Fulfillment Network (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 about whether you have the capital (or the liquidity — available cash assets) for a “stock split” to be a viable option. It may be a better option to withdraw from individual marketplaces.
Now is also the time to consider other routes for fulfillment — bearing in mind the disruption that COVID-19 caused earlier in the year. With a second wave looking likely, and learning from the first, securing a resilient supply chain should be high on your list.
The logistics approach you take will depend on your business, but here are a few of the options worth considering.
Fulfillment by Merchant (FBM)
The traditional alternative to FBA, Sellers are responsible for fulfilling orders themselves, shipping their products directly to customers.
Whether the program makes logistical and financial sense will depend on your business, but there are many advantages:
- Ability to avoid FBA fees
- No limits on stock volume ( compared to Amazon FBA restrictions)
However, there are challenges. It can be difficult to manage and potentially more expensive. A good place to start when assessing FBM is to think about it outside of the context of Brexit. For a full rundown of the pros and cons of the two strategies, check out our article — FBA vs FBM: What’s The Right Choice in 2020.
Seller-Fulfilled Prime (SFP)
SFP is best for experienced Amazon Sellers who already sell high volumes through FBM. Prime status can provide real benefits to Amazon Sellers. Those advantages are also available through Seller Fulfilled Prime.
Amazon requires high-performance standards for SFP membership which may make this a problematic reach in the short term. For example, you must be able to deliver 99% of products on time and adhere to Amazon’s strict return policies.
While Amazon’s requirements should not be underestimated, for those who have sufficient volume and have the logistics problem cracked, it’s worth considering as a future stage means of increasing sales during 2021.
Pro tip: Fulfillment method has a big impact on winning the buy box. And FBA and SFP are great ways to claim that top spot — taking advantage of them whenever possible is a good idea. An advanced strategy is to create multiple SKUs for a single ASIN listing. This allows you to default to FBA, but switch to another fulfillment method if/when you run out of stock.
3rd party logistics
For FBA Sellers facing disruption from Brexit, using a third-party logistics provider (3PL) can replace Amazon’s services with a different managed solution — for example, Bezos.ai. The right partner can deliver everything FBA Sellers have relied on Amazon for: warehousing, shipping and distribution services. But you will need to look into the specifics of how that company is managing the response to Brexit.
Worth adding to the equation is whether 3PL becomes more viable if Amazon again disables shipping for non-essential supplies in the event of a second lockdown.
2. Change in market reach
UK Sellers hoping to access the 440 million EU customers will no longer be able to use Amazon’s logistics networks to do so. However, while there will be unwelcome complications, it may be more worthwhile to sell in the EU. With other UK-based Sellers struggling with the same red tape, it’s possible to use the disruption to your advantage and expand market reach in the process.
Strategies to help:
Look at what your key objectives are for each market:
- Market share
- Acquisition costs
- Customer lifetime value (CLV)
Using your Amazon 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 (or RoAS) will be volatile during this settling down period. Constant analysis of the data and necessary adjustments will become vital during this stage.
Analyze your markets and margins
Brexit is going to cost money. Your ability to cope requires a detailed understanding of your margins. 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:
- Markets you are most successful in — and how you measure that
- Markets in which you would like to increase your share or presence
- Individual markets from which you could consider withdrawal
Investigate the value of other Amazon marketplaces
For example, Germany is Amazon’s second-largest marketplace globally, with $22bn in sales. Due to lower competition, you could consider Germany as having the potential for higher profit per unit sold. German consumers may also be more likely to have money to spend in 2021 and disruption to Amazon warehouses should, in theory, be lower. It’s also worth considering new markets, such as Sweden, that have just gone live.
3. Marketplace Fees and Taxes
There are a number of changes to fees and taxes that Sellers will need to take into consideration. Not only are they regulatory concerns, they need to be taken into account when calculating break-even ACoS, pricing strategies, and overall marginal health.
As a UK business, you may need a fiscal representative when registering for VAT. Fiscal representatives are locally established companies that are liable for the VAT owed by non-EU companies. Having a fiscal representative is currently required by specific EU countries. It’s intended to help tax authorities ensure VAT compliance by businesses established outside of the EU.
Wait till July?
From July 2021, the EU tax rules will change (UK tax rules change on 1 January). Sellers will not need to register for in-country VAT and carry out filings in those countries. Instead, they can opt to complete and file a One-Stop-Shop (OSS) filing alongside their regular domestic VAT return.
Non-EU Sellers can also apply to use the OSS and need to nominate any single EU state for registration and filing.
Note: Sellers holding stock in other EU countries will not benefit from the OSS single return simplification. They must remain VAT registered in each country where they are holding stock. This includes selling using the Amazon FBA program.
With regards to UK marketplace fees, there may be more changes ahead. As an example, we could likely see fees charged with 20% VAT, as opposed to the current 15%. We may also see more unintended consequences, such as the 2% Digital Service Tax.
Strategies to help:
Get advice and keep up to date
These are difficult and complex times — make full use of available resources. It may be wise to seek specialist professional help. Many issues still need clarifying, and keeping up to date will be necessary. Lean heavily on Amazon and UK Government advice websites.
4. Currency volatility
A weaker pound could boost exports. The pound moved to a 31-year low against the US dollar last October and has spent most of the summer nearly on par with the euro for the first time since the 2009 global recession.
Strategies to help:
While a weak pound makes imports to the UK more expensive, it also means that British goods are now cheaper to European shoppers. You may also be able to generate more UK pounds from US sales, so launching or growing your business in the US could be a good strategy.
You may see some international competitors exiting the market — especially with the tightening up of VAT rules. Companies from the US, EU and other countries will find it more expensive to sell to customers in the UK.
Sellers looking to adapt themselves to Brexit need to recognize that there may be other changes still to come. While FBA is still an important service, the less you depend on it, the better equipped you’ll be to weather any future storm. Remember that a more diversified fulfillment network is a more robust one. Disruptions around early waves of COVID already proved that this year.
Most important is to understand your position in the market, your customers and your margins. Diligent and regular analysis will be needed to stay on top of turbulent times. Trust the data.
If you want detailed advice on how to best use the data analysis tools provided by Amazon and third-party suppliers, check out our two free eBooks: