EC4006 - Impact of Brexit on the Retail Industry in the United Kingdom

This essay examines the impact of Brexit on the UK retail industry, focusing on key areas such as access to labor, supply chain disruptions, product quality compliance, economic uncertainty, customer volatility, and escalating costs. It analyzes the declining rate of sales revenue increase after Brexit and uses welfare economics principles like cost-benefit analysis and Buchanan's unanimity principle to evaluate the economic consequences. The essay concludes that Brexit has significantly affected the retail industry, necessitating government intervention to address market inefficiencies and support sustainable growth. Desklib provides access to similar solved assignments and study tools for students.

EC4006 – Fundamentals of
Economics

Contents
ESSAY TOPIC................................................................................................................................1
ESSAY MAIN BODY.....................................................................................................................1
Introduction..................................................................................................................................1
Main body....................................................................................................................................1
Conclusion...................................................................................................................................6
REFERENCES................................................................................................................................8

ESSAY TOPIC
“Impact of Brexit on Retail industry of United Kingdom”
ESSAY MAIN BODY
Introduction
Brexit is a referendum in which United Kingdom decided to leave European Union. This
concept of British exit has split the relations between UK and entire European Union. This
concept has changed the trade, security and migration relationship between these two regions
(Bloom and et.al., 2019). Due to BREXIT, almost every industry has suffered and the main
causes behind this suffering are higher exchange rates and transportation costs. In this essay,
impact of BREXIT is analysed upon Retail sector. Retail industry is highly dependent upon
supply chain and logistics, and due to high transportation costs and taxes, organisations has to
pay high costs to procure goods from other countries of Europe.
Main body
Retail industry is a wider term which is used for the retail services of products. These
products include groceries, home appliances, motor vehicles and many more. This industry is
highly impacted by the concept of BREXIT due to various reasons. These reasons are classified
below as the key areas in retail industry which has been impacted due to BREXIT.
The first area in retail industry which has been impacted is Access of Labour. The industry of
retailing does not include any manufacturing or production. Organisations in this industry
procure products from manufacturers and then sell to their end users. In this process, the most
important key which is the reason of retail industry success is labour. Labourers are used by
retail organisations to convene and assist customers about their purchase. United Kingdom is a
developed country, due to which their labour is expensive. Before the commencement of
BREXIT, the retail organisations use to procure labours from various countries of Europe
(Vajpayee and Sarder, 2019).
According to Jeremy Cooper (2018), the retail industry employs around 300 000 labourers
who belong of Europe. These workers are still in United Kingdom only but they are unlikely to
stay in UK for large period of time (Implications of Brexit on the UK retail industry, 2018). The
retail companies of UK such as Tesco, Walmart, Sainsbury’s and many others employs EU
workers. Due to the commencement of BREXIT, these companies either has to employ only UK
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nationals or has to procure labours from other countries by providing them high wages. It is
considered that every individual has to procure a work permit in order to work in foreign
country. This work permit restricts workers to work internationally. All the requirements and
work permit will impact retail industry of United Kingdom as the accessibility of labours will
decrease and also existing labours will cost these companies higher value which will ultimately
impact the profit margin of these companies.
Another area in retail industry of United Kingdom which is highly impacted is Supply
chain. Supply chain or logistics is considered as the backbone of retail industry. As there is no
usually manufacturing and production involved in these countries, this industry is highly relied
upon the procured products from outside manufacturer (Brown, Liñares-Zegarra and Wilson,
2018). These goods are procured through the way of supply chain. Numerous UK retail
organisations import their products from Europe. Before the commencement of BREXIT, UK
used to procure products of Europe without paying any import taxation as UK was a part of EU.
But after the commencement of BREXIT, UK is no longer a part of EU and has to pay all
product and transportation tax due to which profit each good has been reduced. Not only the
profit but due to increased costs, sales revenue has also reduced.
Figure 1: Total retail sales in UK
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(Source: Total retail sales, 2020)
According to the above graph, it has been observed that the total retail sales revenue is
continuously increasing and the reasons behind this increase are high product costs, increasing
population and inflation. The increasing sales are represented as black in above graph. Despite of
these increasing sales, the percentage of annual sales in decreasing after the commencement of
BREXIT. As it can be seen in above graph, the increase in change in total sales from 2016 to
2017 is 4.5% which has been decreased in 2018 as 4.3% and further decreased 2019 as 3.7%. In
2020, the change in sales revenue has been predicted as 1.2% which will be the least change in
last five years. This analysis implies that sales revenue of retail industry including auto mobile
sales is increasing every year but with a declining rate. If this reclining rate is not considered and
government does not change its policies towards it them this rate can become negative and sales
revenue will begin to show a decreasing trend.
Products quality compliance is another area which has been impacted by the
commencement of BREXIT. Before BREXIT, the exchange of products between United
Kingdom and other parts of Europe was compiled by a set of regulations which every country
has to follow. But as now the UK is no longer a part of EU, retail industry organisations has to
follow two sets of regulations. These regulations will be based upon the quality of products and
their standardisation. These regulations will also result in additional compliance costs for new
products. As United Kingdom is in vulnerable position, its influence in setting the standards in
EU for the products will definitely impact the retailers of United Kingdom. According to
FRASER MCKEVITT, (2019) roughly 62% of all fresh food is imported from EU to UK. Due to
these statistics, it is a big concern for UK retailers as they have to follow the new regulations of
product quality and if the products fail to fulfil these regulations then they have to import
products from different region at even higher prices (Impact that leaving the EU will have on
retailers and consumers, 2019).
Another area of retail industry of United Kingdom which has been impacted by BREXIT
is economic uncertainty. BREXIT is a set of policies and regulations which imply that UK will
no longer be a part of European Union. Besides the British Exit, there are various other
regulations as well which will bring the economic uncertainty in UK. Retail Industry is one of
the most effective and profit making sectors of UK and anything which causes negative influence
on this sector is a concern for whole economy of UK. Due to BREXIT, various issues such as
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currency fluctuations, rise in interest rates, custom duty and taxation will occur which combining
will result into economic uncertainty.
This area of influence is further analysed by the use of welfare economics. Welfare
economics is a concept of economics which uses microeconomic techniques to evaluate the well
being of a nation on aggregate level. This concept is a collection of various principles, theories
and methods. The sole purpose behind practicing this type of economics is to apply it upon
public economics. Currently, UK is experiencing an economic slowdown due to BREXIT and in
this phase, it is important to analyse the economic growth of this country by welfare economics
so that clarity can be gained whether or not the government should infringe in between and
control the situation (Cohen, 2019).
Cost benefit analysis is a technique or method of welfare economics which provides a
comparison analysis. By using this technique, insights can be gained whether the cost which is
spend by the country against the BREXIT is worthy by comparing them with the benefits which
are gained (Khan, 2018).
Figure 2: Social welfare maximisation
A graph for social welfare maximisation is developed above which can help in
understanding the value of welfare analysis in analysing the impact of BREXIT upon retail
industry. The MN curve in above graph shows the maximised welfare of a society, this
maximisation can only be gained when the benefit gained from a commodity is higher than the
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costs of that commodity. This theory is related with the cost benefit analysis. In order to ensure
that UK’s social satisfaction curve is as the curve shown above, the government of this country
should ensure to make a balance between cost and benefit. United Kingdom is a developed
economy and its government must make efforts to ensure that the cost they have implied in order
to practice BREXIT is lower than the profits which are projected to be received due to BREXIT.
By this way, UK’s retail industry will gain the benefit of stable economy and growth prospects.
Customer volatility is another area of retail industry which has been impacted by the
BREXIT in United Kingdom. Retail industry has only one revenue source and that is selling of
their products and in this process the key to success is customers. Customers are the people
which buy the products and are the reason behind the successful retail industry of UK (Kirschen
and Strbac, 2018). As it is considered that customers are highly sensitive to economic downturns,
brand loyalty of customers is continually reducing which is impacting retail industry’s
profitability and productivity. BREXIT has triggered the commercial risk in retail industry and
made the people of UK more on store preferred. People now tend to buy stuff from online stores
rather than offline stores. Also, the low prices of online store have also impacting the pricing
strategies of offline stores due to which profitability is highly affected.
Escalating costs is the area of retail industry of United Kingdom that is influenced by the
BREXIT. Retail industry of UK has recently experienced various issues such as rising employee
costs, depreciation of sterling, increment of business rates and rising commodity prices. All these
issues are the most influenced factors due to which productivity and profitability of UK has been
impacted (Sachs and Stiftung, 2019).
The above area is analysed by evaluating the welfare economics principle that is Buchanan
unanimity principle. According to this principle, the changes which are made in an economy
must be beneficial and must be taken by through the vote of everyone. This principle suggests
when a policy or a revolution is been conducted, it is important to consider all the individuals in
the procedure of decision making.
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Figure 3: The Rule of Unanimity
(Source: The Rule of Unanimity. 2019)
From the above graph, it can be seen that according to this principle, if an economy
intends to enhance the present value of expected net benefits and costs then they are required to
include everyone in the process of decision making. Due to BREXIT, United Kingdom is no
longer a part of European Union due to which various costs of procurement for retail industry
has increased and in order to identify a way to solve this issue, government of UK is suggested to
make suitable measures but these measures must be analysed by the decision making process in
which all important individual are included so that economic welfare can be ensured.
The above analysis of all the areas which are influenced by BREXIT, it has been
evaluated that retail industry has been most affected by BREXIT as it has resulted in restrictions
and limitations upon the procurement of goods and services from the countries in Europe (Symes
and Phillipson, 2019).
Conclusion
From the above essay, it has been concluded that BREXIT is referendum which states that
UK will no longer be a part of European Union. Due to this referendum, UK’s retail industry is
facing various issues which include escalating costs, restricted supply chain and many others.
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From this analysis, it has been concluded that after BREXIT, government of United kingdom
will need to intervene in order to address the market inefficiencies. As it has been assessed in the
essay above that the sales of retail industry of UK after the BREXIT bulletin are increasing with
declining rate, it is important for government to intervene. In order to effectively intervene, few
policies which can be developed by the government are reduction in supply chain taxes and
removing the restrictions from work permit of labourers.
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REFERENCES
Books and Journals
Bloom, N. and et.al., 2019. The impact of Brexit on UK firms (No. w26218). National Bureau of
Economic Research.
Brown, R., Liñares-Zegarra, J.M. and Wilson, J.O., 2018. What happens if the rules change? The
impact of Brexit on the future strategic intentions of UK SMEs. The Impact of Brexit on
the Future Strategic Intentions of UK SMEs (March 1, 2018).
Cohen, S.D., 2019. Fundamentals of US foreign trade policy: economics, politics, laws, and
issues. Routledge.
Khan, M.A., 2018. Book Review: Fundamentals of Islamic Economics and Finance. Islamic
Economic Studies. 25(3).
Kirschen, D.S. and Strbac, G., 2018. Fundamentals of power system economics. John Wiley &
Sons.
Sachs, A. and Stiftung, B., 2019. Brexit and German-British Pro-duction Chains.
Symes, D. and Phillipson, J., 2019. 'A sea of troubles'(2): Brexit and the UK seafood supply
chain. Marine Policy, 102, pp.5-9.
Vajpayee, S.K. and Sarder, M.D., 2019. Fundamentals of Economics for Applied Engineering.
CRC Press
Online
Implications of Brexit on the UK retail industry. 2018. [Online]. Available through:
<https://www.crowe.com/uk/croweuk/insights/brexit-on-the-uk-retail-industry>
Total retail sales, 2020. [Online]. Available through:
<https://www.emarketer.com/content/analysts-weigh-in-how-brexit-will-impact-the-
retail-market>
Impact that leaving the EU will have on retailers and consumers. 2019. [Online]. Available
through: <https://uk.kantar.com/public-opinion/politics/2019/how-will-brexit-affect-the-
uk-high-street/>
The Rule of Unanimity. 2019. [Online]. Available through: <https://www.econlib.org/book-
chapters/chapter-ch-7-the-rule-of-unanimity/>
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