Brexit, as expected, has been detrimental for UK clothing exports to the EU, recent data suggests. But there are ways to mitigate the effect, experts say.

UK clothing exports to the EU have fallen 60% since Brexit as suppliers struggle to wade through red tape.

This sharp drop has put considerable pressure on brands and retailers lacking the necessary expertise, resources, or financial capacity to navigate the complexities of the new regulatory landscape.

Challenges include escalated logistics costs, the complications of registering an EU entity for trading, and increased delays in an already fiercely competitive market characterised by tight profit margins and the need for rapid response to the latest trends.

“The profound shift in the UK’s trade relationship with the EU has hit British brands and retailers hard. Successive waves of disruption caused by Brexit and the pandemic have significantly disadvantaged UK exporters who are having to navigate through increased friction and cost,” comments Richard Lim, CEO of Retail Economics.

GlobalData apparel analyst Alice Price observes: “The decline in clothing exports to the EU has undoubtedly impacted UK suppliers, as they now must navigate complex procedures and restrictions, deterring UK brands and retailers from sending goods to the region, in turn unable to capitalise on the region’s flourishing e-commerce market. 

“Despite a marked fall in exports since 2019, this decrease reflects changes to where suppliers now manufacture their goods, with many moving manufacturing inside Europe to bypass the red tape.”

Changing trade dynamics have resulted in a shift in operations. Before the UK’s divorce from the bloc, clothing was one of the top three exports in non-food retail but post-Brexit, the top three now by value are health and beauty, electricals, and DIY & gardening, making up three-quarters of UK retail exports to the EU.

“International retail is a complicated space to be in, particularly for UK brands and retailers looking to sell in Europe post-Brexit. From language barriers to taxation and customs issues through to warehousing and fulfilment, these are not small obstacles to overcome,” said Alexander Otto, head of corporate relations, Tradebyte.

“In today’s marketplace landscape, access to relevant customer data, an intuitive understanding of the market, relevant experience and knowledge of current trends and an effective fulfilment strategy is critical to success.”

Speaking to Just Style, Paul Alger, International Business director at the UK Fashion and Textile Association (UKFT) agrees Brexit has been a “major challenge” for UK brands and retailers and has forced many of them to review their logistics arrangements.

He says EU import VAT has been especially difficult to overcome with UK companies unable to offset or reclaim at a time when EU retailers are requesting non-EU suppliers to sell to them on a landed basis. Equally, B2C sellers have been heavily impacted by the cost of returns from the EU.

“There are ways around this and companies are finding logistical solutions which they are taking advantage of. Textiles have performed well but the complex supply chain associated with finished garments and accessories has led many companies to insulate their businesses by only importing into the UK goods which are intended to stay here.

“Before Covid, most UK companies used the UK as their global supply hub but now they find it more cost-effective to ship EU manufactured goods to the rest of the world (and to the UK) using the EU’s trade agreements as those goods would not meet the rules of origin of most of the UK’s deals. UK-Canada is a good example of this.”

Alger says the full impact of EU import VAT and intra-EU VAT were not understood by many until after the deal who were subsequently caught out by the Free Circulation issues whereby EU manufactured goods warehoused in the UK attract duty at 12% plus EU Import VAT at the country rate when they are re-exported to the EU.

“On average this adds 30% to the cost of the goods. There are also areas where companies are confused over the difference between goods Made in the UK and those that have legal UK origin. It is possible to have goods made in the UK which do not have UK legal origin as they may be made from imported textiles or leather.”

Going forward, challenges are unlikely to wane. Alger says it’s important brands learn to work with them and seize the low-hanging fruit.

The UKFT is also pushing political parties to ensure they make Brexit work for British manufactured goods, especially those in garments where there is a complicated supply chain involved.

“We believe that there is mutual interest to solve the Free Circulation challenges and that there is benefit to the UK in joining the Pan-Euro-Med agreement which would solve some of the UK’s trade agreement rules of origin challenges. We will also be lobbying the incoming government to increase support to exporters, including grants for trade shows, to enable the industry to raise its game in potential new markets where UK manufactured and designed products are admired and sought after.”

How UK clothing exporters can navigate Brexit-related challenges

Alger recommends companies consider opportunities to manufacture in the UK using UK textiles where these are available.

“These goods will meet all the UK’s trade agreement rules of origin and should be duty-free, though VAT will still be an issue into the EU.”

Companies should also look at their logistics operation for the most efficient way to ship goods around the world.

“We are now seeing the effects of the UK’s decision to leave the EU single market and customs union and that this will be part of an ongoing trend unless the UK government is able to renegotiate parts of the UK-EU trade agreement to make it more friendly to the import and export of manufactured goods.

“If most of your goods are manufactured in the EU as the UK’s closest nearshore supply chain, it makes sense to distribute those goods from the EU and to those countries where the EU has a trade agreement rather than bringing them into the UK. UKFT has a number of different routes to help companies with this including our “Huddersfield Process” and break-block shipping through our logistics partners. For those sending sample collections to the EU, we also have a discounted ATA Carnet facility for members.

“The figures also show that UK fashion and textile companies have been investing in non-EU markets such as the US and Korea with success. However, it is true that these increases are not enough to counterbalance the dent in our garment exports to the EU, our largest market.”

Meanwhile, Tradebyte and Retail Economics suggest there are opportunities to be seized in the online marketplace space.

Annual online non-food sales are estimated to be worth £322.6bn across the EU, with Germany a dominant player, followed by France and Italy.

The concentration of sales among the largest markets means that the top 10 online markets in the EU account for 85.8% of online sales.

From this, marketplaces account for just under half of online sales across the EU, and are considered important platforms for spending among key demographics, typically younger, more affluent consumers who shop online frequently. Currently, marketplaces across the top 10 largest EU markets account for £132.8bn of annual spending.

“Marketplaces offer a strategic approach for retail brands to leverage digital capabilities for innovation, sustainability, and growth in the global market. By adopting these platforms, brands can expand flexibly, adapt to trends, and better manage post-Brexit operations to boost their competitiveness and resilience in an ever-changing sector,” the report says.

By Just Style