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Currency headwinds set to blow into next quarter

Currency volatility is likely to further erode profits in the next financial quarter, UK fashion and footwear businesses have warned.

The euro is continuing to weaken against the pound, with £1 now equivalent to €1.40 – up from the seven-year high of €1.35 recorded in February. Meanwhile, the dollar continues to be strong against both, with £1 equivalent to $1.53.

Richard Utting, European sales manager for British footwear business Loake, said: “It’s not getting any better [in Europe]. We’re quite lucky as we have a good price to quality ratio so our retailers can push the retail ticket higher to maintain margins, but if the euro gets any weaker they will have to increase retail prices or their margins will be hit.”

Oliver Platts, sales director at Scottish cashmere and woollen brand Johnstons of Elgin, said shoppers from the US and China are beginning to avoid the UK in favour of cities that use the euro.

He added: “Now we are worried we could lose out to our Italian competitors for autumn 16, because selling in euros makes them more competitive at the moment.”

It comes after Primark’s finance director John Bason last week told Drapers he expects sourcing in US dollars to hit margins during the fourth quarter. The value retailer is working with suppliers to mitigate sourcing cost increases rather than passing them on to customers.

Marks & Spencer has also said economic issues in Russia, Ukraine and Turkey, twinned with further weakening in the euro, “significantly impacted” its international profit in the six months to April 2.

Meanwhile, Mothercare saw its worldwide retail sales fall 5.5% on an actual currency basis during the 11 weeks to March 28, with volatility having an “adverse impact” on performance.

However, the strength of the pound is good news for some. Other retailers in the Republic of Ireland told Drapers this week that the weaker euro was encouraging shoppers from Northern Ireland to venture south of the border.

Deirdre Devaney, director of fashion, accessories and beauty at Arnotts department store, said cross-border trade is up 25% to 30% year on year.

Martin McElhinney, general manager at McElhinneys department store in Ballybofey, Donegal, added: “We are seeing a lot of sterling customers. They are getting fantastic value on euro when they convert, so it’s encouraging them to come south of the border. We are also seeing massive growth in online sales from UK customers as they are seeing big savings.”

Alex Bennett, fashion business specialist at foreign exchange provider Smart Currency Business, said the pound may weaken after the general election.

“Sterling dropped by 5% following the outcome of a hung parliament in the last election and with nobody able to predict the result this time around, we may see similar effects immediately after the polling results on May 7.”

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