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Weakening pound worries retailers and suppliers

Concern is mounting in the fashion industry over the weakening of the pound against the dollar and the euro.

Currency

The pound has recovered slightly from last month’s seven-year low against the dollar ($1.40 to the pound), but its state of flux is having a knock-on impact on fashion retailers and suppliers. This has been exacerbated by the announcement that the referendum on whether Britain should leave the European Union will be held on June 23.

On Tuesday this week the pound was worth $1.42 and €1.28.

Bobby Lane, partner at accountancy firm Shelley Stock Hutter, said this is a particular problem for manufacturers: “At the moment people are being hit when buying in dollars because the pound has fallen off a cliff. The cost went up at least 10% when the pound dropped from $1.55 to $1.40. Couple this with continuing price pressure from retailers and you have a big problem.

“Consumers are expecting cheaper prices, so retailers are asking for discounts on orders. When you add that to currency costs, you have wiped out your whole 20% margin. Businesses will have to look at the risk, as uncertainty will continue until the referendum on Brexit in June.”

These concerns were confirmed by suppliers. One firm that supplies high street multiples told Drapers: “Currency fluctuation is part and parcel of trading but it has gotten much worse because of the huge drop in the pound. There is a lot of uncertainty over the speculation about Britain leaving Europe and, although the pound has recovered slightly, it’s a worry.”

Peter Ruis, chief executive of Jigsaw, said: “We buy in dollars and euros, so it’s an annoyance. If it continues for 12 months – the pound below $1.50 and €1.30 – it will have an effect on retailer’s margins and people will have to drive more full-price sell-through.

”But the living wage will kick in post-Easter, and I think that will have a positive effect on the pound. And we’ve had a good euro rate for two years. I’m working on the basis that if Brexit doesn’t happen, [the pound] will bounce back.”

 

 

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