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Margins threatened by volatile currencies

Retailers are facing massive hits on margins after the value of the pound plummeted further against the dollar and euro.

Last week, sterling fell to a six-year low against the dollar of $1.52, while the shrinking UK economy is also exacerbating fears over the longer-term volatility of currencies. The cost of importing from the Far East, where retailers pay for goods in dollars, or Europe is rocketing and as a result UK retailers will face bigger bills for stock.

One chief executive said: “It is likely to impact margins by seven points and will also introduce inflationary pressures. The problem is for smaller firms – they won’t have forward bought as much currency because of the implications on cash flow.”

One premium branded independent said the result would be price inflation. “It is just one more obstacle for the retailer and we’re going to start looking at prices. The last thing I want to do is take a hit on margin. People don’t think inflation is a problem but it will be. Retailers are already committed to next season, and even if they’ve planned for flat sales, what if there is negative growth?”

He added that the weakness of the pound was making it more difficult to compete with the increasing number of brands which were selling via their own websites.
Another retailer said there could be a shift in sourcing away from the Far East. “The likes of Turkey are getting more competitive on price because the euro is not as bad as the dollar.”

Barclays Commercial head of retail and wholesale Jeremy Rance said: “A number of businesses will be exposed because of the scale of the volatility of currency. Sourcing will become more expensive. Retailers should be revisiting their plans, cash flow and pricing strategies.”

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