What Brexit means for small business…

Our Co-Founders latest post for The Flock Magazine 

 

As speculation about the possibility of a no deal Brexit mounts, for small businesses, so does the fear. Today, our resident sustainable fashion expert, and small business owner, Dr Antoinette Fionda-Douglas, outlines what it really means for independent firms…

DR ANTOINETTE FIONDA-DOUGLAS
NOV 25TH 2020

I am tearing my hair out. I am bewildered. It is so difficult to ascertain what on earth this all means for me and my business. But I can no longer put my head in the sand and hide. It’s time. I need to deal with Brexit.

The thing is, even writing that word makes me want to crawl under my desk or, even worse, go and tidy out a cupboard instead. Anything but this, frankly. Clearly, that is not the manner in which I should approach my trading future. I need to deal with this properly for the survival of my business. But just what is it I’m actually dealing with?

The fear is real

Last month, the Department for International Trade released a series of new regulations outlining how trade must be conducted between the UK and the EU from January 1, 2021. It made just one thing was clear – celebrations will be muted this New Year. Because these new rules are so complex and will pose so many challenges for UK retailers, particularly those in the SME categories, that they just make me want to hide.

 

Dr Antoinette Fionda-Douglas

 In case you are not aware, I am a co-founder of a sustainable luxury brand, Beira. I, based in Edinburgh, and my co-founder, Flavio Forlani, based in Italy, buy waste from the luxury fashion industry and craft it into beautiful, sustainable limited-edition investment womenswear. Our company is registered in Scotland. We produce in Italy, where we source the waste, and our garments are made by the same artisans that manufacture for some of the top luxury brands in the world. We do so, not just because they are the best, but because it also limits our carbon footprint to manufacture where we source our materials. 

Now though, it’s a question of how Brexit will impact this well-oiled machine. And to be honest – despite trying to read what feels the whole of the UK government website and speaking to as many business experts as possible – I am still unsure. I even completed the government’s own business transition checklist and it spat out 31 actions required, all with individual links to read. Don’t worry, I won’t take you through all 31 – though I will share the highlights (or, more aptly, lowlights).  

Obstacle course

The first obstacle is customs. Previously, UK retailers were not required to declare goods arriving from suppliers also within the EU. This is also the case for importing from non-EU countries, such as the USA, China and some others. Now, for Beira, I will have to declare all goods arriving from within the EU – which is currently all of our production. I can make the declarations myself, but most businesses use a courier, freight forwarder or customs agent, adding to operational costs and, ultimately, resulting in increased prices for the customer.

Secondly, I will need to get an EORI number – effectively, an ID for businesses which import from, or export to, the EU. Without this number, increased costs and delayes are eminently possible. I’ve applied. Now I’m in a queue. Fingers crossed.

Thirdly, and this is the big one. There is tax and duty to pay that will apply to all goods imported from New Year’s Day, unless an exception applies. For clothing, that means paying 12 per cent on all of our goods coming in from Italy – ouch.

 

Beira’s signature Elena jacket

 

What makes this worse is that imports from dominant (fast fashion) supplier countries like China and India will now become significantly cheaper, while those from countries such as Bangladesh and Pakistan will still be able to come in duty-free because of the UK government’s commitment to giving developing countries preferential access. In principal, of course, that’s great. In practice, well… did you watch BBC Our World’s documentary Bangladesh: The End of Fast Fashion?

Fashion supply chains are already difficult to manage. Will the ethical and sustainable approach to social justice in fashion be discarded by brands in favour of the allure of bypassing EU tariffs? Only time will tell.

Waiting game

At Beira, we import our garments from Italy where we pay our fabulous artisans an average of €28 an hour. Now, to do so, we’ll face additional costs of 12 per cent. If we pass that on to customers, our signature Elena jacket, which costs £250 currently, will be £9.39 more expensive.

 

While £10 may not seem like a lot, that is only the cost to sell inside the UK. In the event of a no deal, all UK exports to the EU also would be subject to an additional 12 per cent on top of the previous taxes. And because by now we’ve applied our UK costs such as packaging and mark-up, that amounts to an increase of £41.71 for our non-UK, EU customers. That jacket just got a lot less affordable.

 

Taking action

Obviously, the question many businesses like ours are now asking is what the hell do we do? Already, many are setting up companies outwith the UK, opening warehouses in other countries so they can bypass these duties. But ultimately, that means a loss of jobs in the UK. At Beira, we have the option of shipping direct from the factory in Italy, but we’re not currently set up for this, and it means additional staffing costs at the manufacturer. 

Could I move production to UK? Technically, yes. In reality, not really. We source waste from the luxury fashion industry and produce with one of the best manufacturers in the world. They’re in Italy, and the quality is incredible. Moreover, buying and transporting the ‘waste’ fabric defeats the point as it adds to our carbon footprint.

We could also move production to a non-tariffed country like India, but then we’re facing a more complex supply chain, and potentially more issues with knowing who made our clothes.

 

Image: Fashion Revolution

 

Change our strategy? Well, yes. We’ve little choice. Brexit is making us change our pricing and business models. Instead of only selling direct to customer, we are looking at a wholesale market, particularly for the EU. This will mean that we will have to raise our mark up in line with traditional retailers, ultimately resulting in increased prices across the collection.

So, my head is hurting. I am worried about the future of my business and I loathe THAT bus more than ever. Ultimately, without a deal, making clothes ethically in the EU using a circular economy sourcing strategy will cost more and be far more logistically complex. In fact, many products imported into the country will cost more. It is going to hurt small businesses – the majority of employers in the UK – and it is going to hurt the average consumers’ pocket.

Lose lose

So, who wins? In my opinion, sadly, fast fashion. If we keep adding more friction, will fashion, the second most polluting industry in the world, ever change?

I have everything crossed for a deal – not just for the future of my business but for the future of all EU sustainable businesses trying to make a difference. For the warehouse workers throughout the UK whose jobs are at risk. For the conscious consumers who care about where and how their clothes were made.

Sustainable brands should be the future of retailing, not a casualty of divisive politics. But with the clock ticking on chances of a deal, ultimately, we’re all going to pay a price for this. And right now, that price feels like a tax on doing the right thing…

 

https://flockmag.com/what-brexit-means-for-small-business/

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