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Irish retail: between a rock and a hard border

The question at the crux of the Brexit negotiations – the ending of free trade between Northern Ireland and the republic – continues to damage business on both side of the border.

It has brought down two prime ministers, eroded the value of sterling and led to political gridlock in parliament. And as the Brexit crisis rumbles on in Westminster, retailers on both sides of the Irish border are caught in trading purgatory, as the all-Ireland free trade economy looks set to be fractured once more.

Brexit negotiations have hinged on the question of what will happen to the border between Northern Ireland and the Republic of Ireland once the UK leaves the European Union. Prime minister Boris Johnson met Ireland taoiseach Leo Varadkar in Dublin today to try to come to a solution.

A “hard” no-deal Brexit on 31 October, as Johnson is prepared to execute, will mean the 310-mile land border between the UK and the EU becomes subject to customs, immigration and security controls. 

Goods crossing the border would be subject to inspections, permits and duties, and people – who since the Good Friday Agreement in 1998, have been able to travel freely between the two countries – would be required to show passports or identity documents. Culturally and politically, the return to checkpoints on a hard border are likely to provoke memories of hostilities during the Troubles. 

Managing director and owner of HB Shoes, Justin Morgan, has worked in Ireland since the 1980s, and says a hard border would add more uncertainty to what is already a fragile trading environment.

“I started in 1986. At that time there was a hard border in Northern Ireland,” he recalls.

“I sold to both north and south of the border and needed two sets of samples. To bring them across the border, you needed documents and could spend three hours on a Monday morning or a Friday evening getting a document stamped so that the samples couldn’t be taken off you.”

The paperwork alone means agents in the south will probably think about closing their business

Fashion retailer based in Northern Ireland

He adds that, at the time, there was VAT at point of entry on shoes coming into the UK, so a retailer with a £10,000 order would need to pay an additional £2,000 to cover the bill.

“The goods weren’t released until the border agent received the cheque,” says Morgan. “Retailers who were short of cash or overbought never sent the cheque, so the goods weren’t released. The sales fell through.”

Drapers understands that at present there are no plans to re-introduce VAT at point of entry, even if the UK crashes out of the EU on 31 October with no deal. However, the unpredictability of the situation has left many retailers scratching their heads.

Shutterstock 1232271247

The owner of one fashion independent in County Dublin said she would rein in their spending under a no-deal scenario.

“I suppose people will think of ordering less stock because of possible border issues,” she tells Drapers.

“I would be a lot more cagey. It would depend very much on how long or how many deliveries were delayed. There’s no point having stock stuck waiting [in a warehouse] and missing the season. People are simply afraid.”

Donald Finlay, managing director of Douglas & Grahame, owner of menswear brand Remus Uomo, among others, which is based in County Antrim, Northern Ireland, says: “You get confused one week to the next: is there a deal or not? Your plan changes for each.”

Finlay explains that the company has, in anticipation of any new border restrictions, taken steps to smooth the process by applying for authorised economic operator (AEO) status, which offers preferential treatment to those established in international trade, and operating a customs warehouse on its premises, to avoid passing on potential tariffs that could be introduced post-Brexit on the re-export of goods.

To untangle more than two decades of integration overnight causes a plethora of issues

Thomas Burke, director at Retail Ireland

However, the process is not yet complete: “Revenue and Customs are frantically busy, and it’s turning out to be a longer process [than expected].”

Other retailers are less advanced in their preparations or are not able to accommodate such large changes to their business practices.

One fashion retailer based in Northern Ireland says: “Our managers have been speaking to agents in the south and the paperwork alone means they will probably think about closing their business, though we’ll cross that bridge when we come to it.”

Goodbye to the all-Ireland economy

Ireland hard border shutterstock 1045995349

The potential splitting of the all-Ireland economy between the north and south is a key issue for retailers, many of whom have operations on both sides of the border.

Thomas Burke, director at Retail Ireland, which represents retailers in the republic, says there are three key issues: problems with imports becaues of delays at Dover and ports on the Irish coast; imposition of tariffs; and the overall impact on consumer sentiment any no-deal could perpetuate.

“Ireland has operated as a single economic entity for 25 years,” Burke points out. “To untangle more than two decades of integration overnight causes a plethora of issues. Many businesses operated as a single unit with a headquarters in Dublin or Belfast. They may have to now operate two different business units in two very different ways. That’s bad news for retailers and customers.

It’s a 100% yes to a frictionless border. It is a matter of what the compromises are to achieve that

Donald Finlay, managing director of Douglas & Grahame

“Our fear is that if we experience a no-deal the uncertainty will increase and see a further softening of retail sales especially as we are approaching peak trading at Christmas. The challenge of Brexit is the level of uncertainty around the subject.”

Retail Ireland reported that in the second quarter of 2019, the value of fashion sales fell by 3.6% year on year in June. It noted that that the ramping up of no-deal rhetoric has had an impact on consumer confidence. Its confidence index dropped from a score of 93.1 in April 2019 to 87.7 in June.

Finlay says Douglas & Grahame has grown in the past year, but the company has had to make some changes: “We have managed to keep sales figures a bit ahead of a year ago, but we have had to look at how to achieve that. We’ve been well aware of the challenges, and put in things to stimulate the business, and have been more successful doing that in Ireland than maybe in Great Britain. We are about 2% up on 2018.”

Alternative arrangements, politics and tariffs

Brexit negotiators for the UK and EU have proposed alternative arrangements to a hard Irish border. Prime minister Johnson has proposed a technological solution, whereby vehicles could be scanned as they cross the border, uninterrupted. However, the technology does not yet exist and will not be in place by 21 October.

The EU has proposed a “backstop” whereby Northern Ireland remains part of the customs union and the hard border moves between the UK mainland and the island of Ireland. This proposal has proved politically unpalatable to the Democratic Unionists, who prop up the minority Conservative government.

Finlay notes that the alternative arrangements are confusing: “It’s a 100% yes to a frictionless border. It is a matter of what the compromises are to achieve that.

“I wish I could understand the alternative arrangements, [but] I don’t understand how there cannot be some sort of border checks and control. [It would] lead to a lot of problems.” 

Burke says any border solution that includes checks would have an impact: “A huge number of retail employees live on one side [of the border] and work on another. If we do see a return to a border or re-introduction of checkpoints it will cause delays for those employees and doesn’t help in terms of social issues.

“We know of no alternatives tabled as yet, in terms of the backstop, to make sure goods can flow [unimpeded]. That’s the real frustration in our industry.”

The UK parliament is preparing to vote to outlaw a no-deal Brexit on 31 October. Nevertheless, the vexed question of the hard border and the backstop remain. Retail businesses operating in the all-Ireland economy are bracing themselves for will undoubtedly be a detrimental impact on trade for operators on both sides of the border. 

The Drapers Verdict

For retailers who have operated in a free market on the island of Ireland, the real life choices are both unclear and yet unavoidable. Decisions made in London, Dublin and Brussels may lead to checks on trade but until clarity emerges all retailers can do is prepare for as many eventualities as possible while keeping costs of such measures as low as they can.

Politicians must face the truth that the integrated all-island economy cannot be unravelled overnight without consequences. That should focus minds and be given sufficient weight in negotiations in coming weeks, otherwise the economic price of no deal could be as damaging as the political one.

 

 

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