International trading features high on the list of most fashion retailers.
International trading features high on the list of most fashion retailers. Karen Millen, Reiss and Marks & Spencer have all recently announced plans to expand their portfolios overseas. And where these retailers make their mark, other designers and brands will follow.
However, a move into international regions – with the direct costs on setting up a new shop plus the investment in additional production – can add another, often overlooked, cost factor: the exchange rate. Getting it wrong, particularly for a small business, can make a difference between profit and loss.
Currency companies are able to provide forward contracts that can lock in rates of exchange, while also offering much better rates of exchange than a bank can provide. For example, take a UK-based company that buys $100,000 worth of stock.
At the start of May the rate of exchange was $1.62 to the pound and so this would have cost £61,730. At the end of May, the exchange rate was nearly $1.54 to the pound and therefore the same dollars would cost £64,940.
Forward contracts therefore allow companies to lock in exchange rates for up to 24 months, which can help with budgeting, pricing structures and securing bottom-line profit.
- Chris Canning, Head market analyst at currency specialist First Rate FX