For Hello Baby, getting Brexit-ready took 26 days
March 1, 2021
UK e-commerce businesses’ sales to Europe have increased significantly in recent years and this has been a key lever in many businesses’ growth strategies. At Mollie we’re very fortunate to count many UK e-commerce businesses as customers and have seen this growth first-hand.
But many businesses are now struggling to overcome Brexit-related challenges and continue trading successfully in the EU.
We spoke to e-commerce consultant and online retailer Trevor Ginn about how his business, Hello Baby has been impacted:
“Before, there were no borders. You didn’t have to think: shipping something to the Netherlands was like shipping to Basingstoke”.
Trevor took a 26-day deep dive to learn how to ready his multi-channel e-commerce business for cross-border shipping outside of the single market – here’s what he found:
1. The hidden importance of EU supply chain revealed
“In some ways e-commerce has become easier - because channels have got easier; things are so templated. But it’s also got harder. It’s a lot much more competitive.”
Trevor has been running his own ecommerce business since 2008, which he has grown to a turnover of £4m year, and also runs Vendlabs - an e-commerce consultancy that specialises in marketplaces and international trade and supports companies looking to grow sales through multi-channel selling.
Pre-Covid and Brexit, Hello Baby sold about ⅓ through their website, ⅓ via Amazon (about ten countries) and ⅓ on other marketplaces (Bol, Fruugo etc) with a geographic spread of ~25% of sales within EU, ~25% RoW and the remaining half within the UK.
Brexit revealed some previously ‘hidden’ logistical considerations:
“We tend to deal with UK agents of a brand or directly with the brand based in the EU. For example, Aden & Anais has a warehouse in the Netherlands. Before Brexit, ordering products from the EU was like ordering them from within the UK. Warehouse location was a completely hidden factor. All of a sudden, it matters a lot.”
As a working example: if Hello Baby places a brand’s minimum order of £200:
- Orders are delayed because carriers won’t deliver until import tax is paid;
- There is a processing fee from the carrier;
- HS-code dependent, there is an import duty of between 4-10%.
This motivates resellers like Hello Baby to buy larger volumes less frequently - to mitigate the handling fee – but that ties money up in stock which can create cashflow problems for small businesses.
It also means they can’t hold such a breadth of products and will inebvitably end up with more out-of-stock notices.
Managing stock and cash flow, already tricky, just got trickier.
2. Balancing cost-saving on tax and shipping with customer experience
Before Brexit, Hello Baby shipped with Royal Mail (untracked) and had postal bags per country for the different rates. Shipping across Europe was just a question of putting the right parcel in the right bag and it would go straight to the destination.
Now, for orders over 22 Euros - Royal Mail is no longer a viable option:
“Royal Mail don’t yet have an untracked DDP (Delivery Duty Paid) service. Everything over 22 EURO has import duty so we have to send them via a tracked service. The cost of orders going into continental Europe, depending on country destination, has gone up by as much to 10X.
I would prefer to deliver DDU (Delivery Duty Unpaid) but the problem is orders get stuck in customs or sent back.
You get bad feedback; a lot of things will just never get delivered because people won’t pick them up. From experience it doesn’t work.”
Back to our working example - this time outbound to fulfil an order:
- (The UK-import process for Aden & Anais products has already added 10%).
- Now, an item over £22 is purchased by a customer in Estonia.
- It has to go tracked for the processing of customs / import duty.
- DDP carriers charge between 85p to £8.50 for clearance - including the customs fee plus an additional charge for the ‘risk’ they take.
Curiously, this ‘risk fee’ varies significantly by carrier.
Trevor carried out a Brexit Courier Comparison exercise and picked up this vast difference:
"I have a £25k credit limit with a particular carrier who is now charging a punishing processing charge of £8.50 per shipment seemingly for credit-risk. Perhaps it’s because they simply don’t want to deal with it? If another carrier can do it for 85p, they clearly aren’t trying to be competitive.”
In summary: in the working example above, a parcel that pre-Brexit would have cost £4.50 to ship untracked with Royal Mail will now cost £10.50 with the courier that came out tops. Other carriers in his comparison exercise with higher processing fees get into £20 territory - 5X Royal Mail untracked pre-Brexit.
3. Point of entry, registering in EU countries and import tax
“I’m not a VAT guy. I just want all of these things to be invisible. But as fast as I run away from these things they run after me faster.”
When shipping from the UK, the courier has to choose a point of entry which tends to be the Netherlands. In this case, the merchant will be charged the import duty:
- If you’re registered in the Netherlands, you get charged the 22% import tax but can claim it back at a later stage and save around 5%.
- If you’re not registered in the receiving country, you pay tax on the gross and can’t claim any of it back.
For merchants with higher marigins - or the option to gradually increase prices - Trevor suggests the latter might be the simplest option; and worth it.
He also recommends taking some professional advice to make sure you understand your tax liability as a cross-border merchant.
4. Switching Europe ‘back on’ will take some configuration
“I’ve spent rather a lot of time talking to people who should know the answers to questions - but don’t.”
Trevor spent a significant portion of his 26 days getting new rates from couriers and doing his comparison, then redoing shipping rates across eBay, six Amazon properties, Frugo, and other marketplaces.
“I almost completely ignored it before the end of December. We didn’t know what was going to happen so we couldn’t really do anything about it. I thought that we’d have enough time between Christmas and new year to fix it but I was completely wrong.”
When will he consider Brexit done for Hello Baby?
“When we’ve got everything live again across all the channels. It’s just the configuration we need to do now.”
In closing, to summarise Trevor’s learnings:
- Understand your VAT liability
- Get the correct HS-codes for all products you sell
- Orders under 22 Euros are exempt from import VAT so can be sent via an untracked service without getting stuck at customs
- For orders over 22 Euros, send via a tracked DDP service
- Explore whether it’s worth registering in an EU country like the Netherlands.
For further reading, learn more about the three major headaches of Brexit in a refreshingly simple overview from Ruud den Rooijen at Salesupply.