UK brands and retailers with an international presence are being urged to put strategies in place to address the growing problem of fluctuating currency rates.
Businesses importing, exporting and selling goods across multiple currencies have told Drapers they are feeling the effects of the stronger pound against the euro.
Last week the pound climbed to a seven-year high against the euro, with £1 equivalent to €1.35. However, it has weakened against the dollar, now standing at $1.53 compared with $1.72 in July 2014.
A study published by Lloyds Bank this week showed 56% of small and medium-sized businesses are worried about foreign exchange movements.
As a result, financial experts are stressing the need for businesses to set currency buying plans and budget levels at the start of the season and implement strategies and agreements that limit the impact of currency volatility, such as hedging and forward contracts that lock in favourable exchange rates in advance.
Robert de Keyser, distributor of occasionwear brand Tahari, said: “Two weeks ago we took the decision to begin trading in euros in Ireland, where we previously traded in pounds, to swallow any costs because we didn’t want to hike up prices. As a business it’s important to watch the markets and ensure you’re not passing costs on.”
One UK-based clothing supplier, which imports from China and other countries, buying in US dollars, said: “Sterling weakness against the dollar presents a big problem. We import so much in raw materials that it will have an effect on the finished product. The pound now buys less.”
However, the supplier added: “It makes us more competitive in terms of British manufacturing as sterling strength against the euro is at a high.”
The European sales manager of one British footwear brand said: “Our export business has had a fantastic start to the year. However, it would help us if the pound was to weaken against the euro as we invoice in euros, so it makes a huge difference to prices.”
Financial experts believe there are several steps that can be taken to ensure companies’ bottom lines are not affected by the changes.
Alex Bennett, fashion business specialist at foreign exchange provider Smart Currency Business, said: “Forward planning and currency risk strategies are vital when considering international expansion and trading in new markets, currently a key area of growth for many fashion brands. Keeping an eye on economic developments and currency market movements so you can plan your business strategies accordingly is key.”
He also suggested making use of techniques such as natural hedging, which involves using foreign currency to pay other suppliers, manufacturers or staff in that country.
Richard Lowe, head of retail and wholesale banking at Barclays, added: “It is important to have strategies in place to react to changes, especially if you’re a low-margin business where the risk is greater. A lot of people will put out forecasts and, while we should read them, these are just forecasts. The market is going to do what the market is going to do and nothing is certain.”