Since the start of the credit crunch in 2007 the value of the British Pound has fallen sharply against a whole range of currencies. Although many of us complained that this has put up the price of petrol and increased the cost of foreign holidays, we were reassured that this would be a boon for the UK economy, as exporters provided the world with cheaper British goods.
So far the evidence as to how much the fall in the Pound has helped UK exporters is mixed. Indeed, during 2010 the current account deficit actually increased as imports rose faster than exports.
One area of the economy that should be able to take advantage of the fall in the value of the British Pound is the retail sector, which has the size and technical capacity to take advantage of the relative cheapness of UK goods. London regularly attracts large numbers of overseas shoppers however the country’s retailers could be taking advantage of their competitive pricing by delivering directly to people’s homes throughout the European Union and across the globe.
But is the fall in the value of the Pound, really compensating for the increased delivery cost of buying from another country? Well not always, but with some estimating that the Pound is currently around 20% undervalued against the Euro, there are saving to be had. In addition to this the delivery cost to mainland Europe is not generally prohibitively more than the delivery cost within the UK. For example, Debenhams charges delivery of £4.00 in the UK and £7.00 in mainland Europe.
Unlike other countries with more highly regulated retail sectors, such as in France, the UK also benefits from regular sales periods. During sales periods in the UK, it is difficult for retailers to stand out from the crowd as every store is slashing prices. By heavily promoting these discounts in other countries, UK retailers could be very attractive to foreign customers.
Furthermore, faced with intensive domestic competition, the UK retail sector is one of the most efficient in the world and has been able to keep costs down through a refined supply chain, well managed systems and tough negotiations with suppliers. This level of efficiency has been passed through to the consumer, who has for many years benefitted from falling real prices. Again, this should help UK retailers look attractive when compared to less efficient operations in other countries.
Finally, the UK benefits from a diverse range of retailers and products. Given the UK consumers love for shopping and the countries relative size and affluence, it has one of the most vibrant retail sectors in the world, selling new and innovative products. In addition to the price benefits of buying things price in British Pounds, overseas consumers could also benefit from a whole new range of products.
Almost all major retailers in the UK have a transactional website, where customers can browse and purchase goods at their leisure, using their home computer, smart phone or tablet. However, not all these websites are set up to handle purchases made by overseas customers. Although the logistics of expanding deliveries abroad may be somewhat difficult, the challenge is by no means insurmountable, and without which these retailers are denying themselves access to hundreds of millions of potential customers.
Those retailers that currently do not delivery abroad should start by looking towards the major markets in Europe such as German, France, Italy and Spain, being within the European Union, there are fewer barriers to entering into these markets, whilst their proximity should keep delivery costs relatively low. Once established in these major European markets, the retailer could look to expand further, if the benefits are judged to outweigh the costs.
There are few retailers that would not benefit from a well run international delivery function. Although the cost of implementing and running this service will be too high for some retailers, there are some large UK retailers that are currently missing out on an opportunity to grow sales, spread their brand internationally and potentially lay the foundations for full international expansion.
Retail is one of the most important parts of the UK domestic economy, if it can take full advantage of the weakness of the British Pound and recent technological changes; it has the potential to continue to thrive despite a tough retailing environment at home.
Written by Simon Wallace