Eurostyle – Navigating Brexit issues to continue strong international growth

Brexit has finally become a reality, but that doesn’t mean Irish companies with a significant presence in the UK have overcome all hurdles.

Many, however, identified the hurdles at an early stage and now have great advice to pass onto other companies in similar situations. Eurostyle is a Cork-based company with roots in the city’s apparel industry since 1820; now predominantly a branded golf/lifestyle company, Eurostyle found itself very vulnerable to the threats of Brexit as 85% of their business was with the UK.

“We have a global licence for Calvin Klein Golf and we own two golf brands, Green Lamb, which is the No.1 ladies golf brand in UK and Ireland, and Dwyers & Co, a golf trouser brand that dates back to 1820,” explains Alan Dwyer, managing director at Eurostyle. “We also own MissDesignerGolf.com, which sells discounted ladies branded golf apparel online throughout Europe. When Brexit first came up, five years ago about 85% of our business was with the UK, but we identified the issues associated with Brexit and put a plan in place.”

With the support of Enterprise Ireland to find a key stakeholder within the organisation to deal with Brexit, the company identified three major issues with Brexit: duty costs making their products less competitive with fellow UK suppliers, the possibility of economic issues in the UK following Brexit and the subsequent hit on the sterling exchange rate.

“Our first strategy was to look outside of the UK for business, building up relationships with online companies such as Amazon in the US and Zalando in Germany,” says Alan.

“We sell to 18 countries in Europe, but we also now sell to the USA, Canada, Malaysia and Australia. Currently we’ve reduced our exposure to the UK to 70% of our business, and we’ll be at 50% in two years’ time.”

The second hurdle was customs. “The fact that we do business outside of Europe means we have experience in dealing with customs,” says Alan. “We would know a lot about the paperwork required. Our plan to overcome this hurdle is to bring the products directly into the UK to our bigger clients, so we avoid having to pay a duty on goods moving from Ireland to England. We’re VAT registered for the UK, and we have a warehouse and a logistics company set up there already.”

Despite putting in a system whereby the company can supply directly to their UK clients, Alan believes that diversifying their client countries as key. “We’ll continue to build relationships with clients outside the UK, as we think their economy will take a hit from Brexit, and the demand mightn’t be there for us to grow our business. Also, as we sell in sterling to our UK clients, if sterling gets weak and moves towards the euro, our margins could be hit very badly.”

And that’s not the end of the Brexit planning. “There will also naturally be some delay with shipping with Brexit. About 50% of our MissDesignerGolf business is with the UK and we can’t take returns without a duty having to be paid – so we’ve also had to partner with a UK company to deal with our returns. There’s a lot to think about.”

 

The effects of Covid

Eurostyle sees Brexit as a hurdle they must overcome – this same practical approach came in useful when Covid hit Ireland in early March. “Covid affected us hugely,” says Alan. “We were basically told on a Friday night that we were closing down at midnight, and we had €7/€8 million worth of goods to deliver over the next 12 weeks. It became a bit chaotic as we had a lot of cancellations from our customers and then we had to deal with our factories and suppliers.

“Our business works through pre-orders, so our customers might place an order in August/September for delivery the following March for spring – when Covid hit, we lost 25% of our pre-orders. In the middle of all this, we had a huge cash flow issue as we had goods coming in from Asia that we had to pay for, but we couldn’t send them out during Covid. Enterprise Ireland gave us a support loan from the Sustaining Enterprise Fund, which meant we didn’t let any of our big suppliers down – and we think that will be key for our success in the next year. A lot of American companies basically told their factories tough luck, we can’t pay you, whereas we honoured every order from every supplier and built a strong relationship with them on the back of this.”

But Covid, in a way, simply sped up an inevitable shift in Eurostyle’s business model, as Alan explains. “All the bricks and mortar shops closed and didn’t want any goods, but our online clients got busier and busier – so our business went from being a 70% bricks and mortar/30% online split three years ago to being the opposite now. Most of our online clients have doubled their business during Covid and therefore now want double the product from us. As a result, our business will grow strongly over this year and next. To be honest, we had been working towards this change for a few years and in a way, Covid played into our hands a little.”

As a result, despite the hurdles of Brexit and Covid, the future is bright at Eurostyle. “We’re about to take on a licence for DKNY Sport in Europe, a fairly major American brand, so we think over the next few years our business can double. This will help us venture beyond golf and into the general sports market. Calvin Klein Golf has grown considerably and MissDesignerGolf.com has nearly doubled in sales this year. Obviously we lost out on the bricks and mortar shops, but those losses haven’t been as significant as the gains, so we’re very positive going forward. We thought that Covid could close our business but it’s actually grown it, and we see Brexit as another hurdle that we need to carefully navigate in order to move forward – not something to panic over.”

 

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Brexit: The key takeaways for Irish firms

The conclusion of the EU-UK Trade and Cooperation Agreement (TCA) was a significant achievement for all concerned. The historic deal provides for tariff- and quota-free trade between the EU and the UK and protects Ireland’s place in the Single Market. It also establishes a foundation for a strong future partnership and positive engagement and co-operation between the EU and the UK in the period ahead.

 

Of critical importance is the fact that Ireland’s €92 billion trade in goods, services and agrifood with the UK will not be subject to unwelcome tariffs.

Another very important dimension of the TCA is the arrangements it puts in place for international connectivity, including aviation and road haulage, co-operation on cross-border law enforcement, energy links, trade in services as well as goods and a range of other important areas such as UK involvement in EU programmes, including the Horizon research programme and PEACE PLUS.

In addition, a legally secure bridging mechanism has been put in place to allow for the continued smooth flow of data between the EU and the UK. This avoids potential disruption to current arrangements where companies in Ireland have payroll and other processes carried out in the UK. It also enables Irish service providers to continue serving UK customers, with no requirement to adjust existing arrangements.

The arrangements for air travel mean point-to-point flights between the UK and EU destinations, including Ireland, can continue to operate smoothly. This will help maintain vital trade and business corridors between Ireland and the UK.

There are also new arrangements on ownership and control, and marketing cooperation between airlines. The impact of these arrangements has already been seen, with Ryanair moving to restrict the voting rights of UK-based shareholders.

The UK’s departure from the Single Market does mean new restrictions on British airlines, with point-to-point routes between EU destinations no longer open to them, for example.

The arrangements on road connectivity are particularly welcome as they make explicit provision for the unique situation of the island of Ireland, and the rights for our haulage sector are protected as much as possible. The agreement provides for point-to-point access between the EU and the UK, which covers the majority of traffic between Ireland and the UK.

Irish hauliers will also enjoy some cabotage rights within the UK. These will allow hauliers to deliver a load to one destination in the UK and then carry goods to another destination there. North-South cooperation on road haulage is protected, while Irish hauliers will retain the right to transit through the UK to third countries outside the UK, such as Switzerland.

But tariff- and quota-free trade does not mean barrier-free access. While the TCA is fundamentally in Ireland’s interest, it cannot and does not replicate the status quo which existed prior to Brexit. The UK’s decision to leave the EU means that the EU-UK relationship cannot be as close as it was before 1 January 2021.

From a practical point of view, this means that Irish goods are now subject to customs checks and controls on entry to the island of Britain. This applies to all goods destined for the UK market or transiting Britain en route to the EU or other markets.

To illustrate the scale of the challenge this presents for Irish business, it is estimated that the number of declarations made by Irish firms each year will increase from 1.7 million a year to more than 20 million as a result of Brexit

A great many Irish businesses have already prepared for this new situation and have put in place arrangements to cater for it. Those who are not yet ready need to act now if they are not to suffer severe disruptions to their business.

The first step in the preparation process is to obtain an EORI (Economic Operators Registration and Identification) number. This is a European Union registration and identification number for businesses which undertake the import or export of goods in or out of the EU. Companies can register for a number through Revenue’s EORI online registration service; the process is very straightforward and can be completed in minutes.

After that, companies need to determine the commodity code for the product or products they are exporting. Companies can find detailed lists of these codes on the Revenue website (revenue.ie).

The next step is to decide who will be handling the customs declarations. In many cases, firms will use logistics partners or customs brokers to do this, but SMEs may well decide to do it themselves either to reduce costs or due to difficulties in finding a suitable partner.

Making declarations online is known as Direct Trader Input (DTI) and requires importers, exporters or their agents to have dedicated software making electronic declarations to the Automated Entry Processing (AEP) system. To do this, companies need to register with Revenue and obtain a digital certificate to make declarations to the system.

Several software products which can handle electronic declarations are available on the market and many of them can interface with ERP and accounting software to extract the data required for the declarations.

Accuracy is absolutely critical. There are more than 50 data points in a customs declaration and a slight error in any one of them will slow down or stop the shipment.

Where companies do decide to use a partner to handle customs on their behalf, they should not rely on business carrying on as usual in the early months of the new arrangements. The massive increase in the volume of declarations will put even the largest and best-prepared operators under strain. Companies need to talk to their partners and ask them if they are ready, if they have taken on more staff, and how high up their priority list they are.

For larger exporting companies, there is the option to apply for Authorised Economic Operator (AEO) status with Revenue. This allows them to self-certify exports and receive priority treatment when their goods are crossing borders. Traders that have registered under Authorised Economic Operator schemes will be mutually recognised in the EU and UK under the TCA.

At another very practical level, businesses must prepare for delays in supply chains, both for imports and exports. The massive traffic jams witnessed at Dover and Calais and other English Channel ports before Christmas gave some indication of what could happen in worst-case scenarios. Many importers and exporters will have to increase stockholdings to cater for such delays and this will require them to invest in warehousing and other storage facilities as well as potentially change the terms of trade with their customers and suppliers.

Those exporters who are not yet ready for the new customs regime should use the traditionally quiet period at the beginning of the year to prepare for it. Enterprise Ireland has a suite of supports available to help firms get ready and an excellent starting point in the process is the online Brexit Readiness Checker which delivers a personalised report that highlights any gaps in preparations, identifies priority areas for attention, and gives details of where to find help and support, all in 15 minutes.

The EU-UK Trade and Cooperation Agreement (TCA) may not have replicated the frictionless status quo which has existed up until now, but it certainly represents a vast improvement on what a no-deal Brexit would have meant for Ireland and Irish businesses. As such, the challenge now is to make the most of that and take advantage of the tariff- and quota-free access to the UK market which the deal has delivered.

 

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