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Fashion industry braces against volatile exchange rate

Retailers and brands are bracing themselves against the medium and potentially longer-term effects of the weaker pound.

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Sterling plummeted to a 31-year low in the days after the UK voted on June 23 to leave the European Union. Its value had rallied slightly to €1.20 and $1.34 today, following news that former home secretary Theresa May will replace David Cameron as prime minister.

“It’s difficult to predict what the long-term consequences are going to be,” said Asos chief executive Nick Beighton earlier today, after revealing that sales rose 30% year on year for the four months to June 30.

“In the medium term we’re expecting a benefit from the exchange rate. Our prices look cheaper to US and European customers, and we think that will give us a greater sales trajectory.”

“The extra sales will offset any additional input costs,” he added, explaining that Asos buys much of its raw material, such as cotton, in dollars.

Colin Temple, managing director of Schuh, said the exchange rate was not having an effect “at the moment”, but pointed out that its customers in the Republic of Ireland, buying in euros, might expect prices to be adjusted downwards if the exchange rate continues.

He emphasised that this would not be an issue for at least a few months: “If [the current rate] is sustained, it’ll affect the price of petrol and goods, and cost us more. I think prices would go up, but it depends – it could go the other way in a few months.”

One high street supplier told Drapers: “I don’t think you’ll see much movement in prices before October or November but then things will have to rise – there is no way that retailers can absorb those price increases, so we will start to see a bit of inflation.”

Last week, John Lewis managing director Andy Street said it was not clear yet how the volatile exchange rate “will feed through”, adding: “It’s a big issue for us to face into next year.”

Street insisted that there has been no visible impact from the vote on trading so far, but he admitted that any visible slowdown in consumer spending would be a grave concern. “Whatever people thought about this, has it actually changed behaviour? That’s what we need to see.”

The next day, a survey by market research firm GfK revealed consumer confidence nosedived in the referendum’s wake. Fashion is among the vulnerable sectors as worried consumers cut back on spending, it found.

 

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