The UK is Amazon’s third largest market with $9.5bn sales in 2016, and £6.4bn invested since 2010 . It has established a clear competitive advantage over virtually all retail chains in the UK by offering a large range of products, at record delivery times and affordable prices. But the UK’s decision to leave the EU will impose new challenges for Amazon to address. Brexit will bring about changes to British tariffs and customs regime, FX rates, and immigration policy, impacting economic outlook and consumer spending. This will likely lead to more complex and costly supply chain management for Amazon, with the additional complexity that the outcome of Brexit negotiations is still highly uncertain today. Between “hard” and “soft” exits, the trading position of the UK with respect to the EU and rest of the world could take on very different forms . But despite this uncertainty, Amazon must consider the potential impacts on its supply chain and begin its remediation strategy.
Amazon’s sourcing and procurement could be the first impacted: if the UK leaves the EU single market, it will likely see standard WTO tariffs (2% to 13%) applied to imports and exports , and further depreciation of the GBP will make imports less attractive. Amazon currently imports a large percentage of its goods sold, so these changes would directly impact its COGS and ability to offer affordable products to UK customers. It is unclear what steps Amazon has already taken to address these potential future costs increases, but there are multiple actions possible. Amazon should first assess the impact of new tariffs and FX movements under different scenario on its profitability. It should begin discussions with its major suppliers about potentially sharing the increased costs . Finally, for certain product categories, such as fresh food, Amazon could begin looking for alternate local suppliers , although it is still unclear how the price of domestic production will be affected. All of the above would likely have an adverse impact through increased costs, but a “hard” Brexit could also yield new trade deals between the UK and non-EU countries, which could provide new products on Amazon and beneficial commercial opportunities .
A change in British customs regime could also impact Amazon’s logistics and distribution network. Under the current single market regime, Amazon can transport goods between the UK and EU effortlessly, serving customers in the UK from European centres and vice versa. With any restriction of movement of goods, Amazon might have to rethink some of its logistics and product flows, as for example, transiting products destined for the UK from the EU would now incur unnecessary additional costs. In addition, new customs regulation may create timing delays in the supply chain if UK ports become bottleneck from new import declaration requirements , limiting Amazon’s ability to deliver goods as rapidly and reliably as before. Perhaps to anticipate this medium-term strain on logistics, Amazon has announced the opening of a new distribution centre in south England . Amazon should look to further rationalise its fulfilment centres in the UK and EU to ensure smooth operations and continued fast delivery to both markets , weighing the benefits of savings on tariffs with the costs of holding additional inventory and operating warehouses.
Brexit will impact the human resources of Amazon’s supply chain. Changes in immigration and labour laws could increase the cost of labour and lead to shortage of labour, both low-skilled (currently made up of largely immigrant workers) and high-skilled (if the UK has trouble attracting talented foreign workers) . This would affect Amazon’s ability to recruit for their warehouses and distribution network, as well as for their headquarters. In February, Amazon announced their decision to hire 5,000 additional employees, software developers, engineers, and technicians, and to start apprenticeship programs in engineering, warehousing and logistics . This indicates Amazon believes in the UK growth potential, but is also a defensive move for the company to secure employees ahead of potential changes to immigration policy. To the extent that it can bear these additional resources today, Amazon should continue to hire in the UK, and more importantly strive to increase employee retention ahead of the final Brexit outcome in March 2019.
In conclusion, the potential changes to the UK’s tariffs and customs regime, FX rates, and immigration policy caused by Brexit will likely have adverse effects on Amazon’s sourcing, logistics, distribution and human resources in the UK. Although it is risky for Amazon to take drastic actions in today’s uncertain environment, it is important for the company to analyse the potential impacts different scenario might have, and anticipate solutions whenever possible. However, could we also consider how much Amazon could benefit from these changes, as the other British retail chains struggle with even less flexible supply chains?
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