Tech importers deal with the volatile Rand
The liquidity of the Rand means a “roller-coaster ride” for
companies which depend on importing products for retail in South Africa, “but big
tech retailers are quick to point out that such a big component of their
businesses is definitely factored into the equation”. A movement in the greater
global economy, powered by more stable markets such as the USA, the eurozone
and Asia, are reflected in the fluctuations in the local unit, which can prove
chaotic to some local companies. Tech retailers and distributors such as
Incredible Connection, Hi-Fi Corporation and Esquire, who import tech and
electronic goods from overseas, weighed in on the impact the volatile Rand has
on their businesses. JD Group CEO, Grattan Kirk, opines that exchange rate
movements are all part of its business, and as such, the group takes out
forward cover for all items imported when orders are place. JD Group houses two
of South Africa’s largest tech and electronics retail brands, Incredible
Connection and Hi-fi Corporation. “In the case of tech products, as has been
seen over the last three or four years, the dollar input prices have been
coming down as well,” Kirk said. Reflecting on the impact of the rand, Kirk
notes that manufacturer efficiencies, lower dollar component prices, coupled
with a stronger rand, has led to a consistent lowering of retail prices for
items such as TVs (LED,LCD) computers, computer printers and monitors, HiFi and
audio equipment, already.
The cost of volatility
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The most obvious impact the Rand has on tech
retailers shows up in the form of pricing. “Naturally the volatility of the
Rand affects pricing, as it is more difficult to plan and to buy stock,” said
local tech and hardware distributor, Esquire.
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“If the Rand dips, it is possible to increase
the prices on products; but if you have made a big order of a certain product
line at a certain Rand price, it is hard to recoup some costs if the value of
the Rand suddenly drops, and this drop had not been factored in.”
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“If there is substantial volatility in the Rand,
which we were unable to predict, or factor in, then we do our best to hold our
prices steady to the benefit of our clients,” Esquire said.
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Incredible Connection and Hi-Fi Corporation,
being much larger brick-and-mortar retail outlets, also build much longer-term
security measures into their stock-piles to buffer any unexpected twists in the
local currency’s performance.
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“As a rule of thumb, we keep about two months
stock in store or in our warehouses and the suppliers probably have between 30
and 60 days stock in their logistics infrastructure. That effectively means we
have between three and four months stock in the “system” to cover short term
exchange rate movements,” Kirk said.
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“Thus, it’s possible to cope with weekly
short-term movement in the exchange rate without having to change selling
prices daily or weekly.”
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But even when retailers and distributors take
currency fluctuations into account, they are not immune from the effect of
long-term trends or unexpected dips in the Rand’s value.
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“Longer-term movements in the exchange rate do,
however, end up being priced into the selling price. This is either effected by
an increase or decrease in selling prices,” the JD Group head added.
Size matters
Rand fluctuation has a contrasting impact on
businesses, depending on the size of operation, while long-term movements in
currency will hit both large and small tech importers, the sudden dips and
peaks are more likely to impact smaller outlets, “for better, or worse”.
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“We have to manage our business with the
exchange rate being an integral part thereof,” JD’s Kirk said. “We have been
doing it for many years and have policies and procedures to accommodate the
exchange rate risk, etc. Practically, you can manage exchange rate movements
either up or down when they move slowly.”
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“The real issue is when the rates move
aggressively one way or the other and remain there for 2/3 months and then back
again. That plays havoc with procurement and buying and stock holding,
particularly for a large group like ours.”
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“Smaller players get an advantage if they are
not holding a lot of stock when the rand exchange rate strengthens, as they can
quickly buy cheaper.”
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However, as Kirk pointed out, this could also
work against smaller companies if the rand weakens: “Then they are forced to
buy stock at a higher price, where we are carrying stock at the older, better
exchange, hence, we have a pricing advantage.”
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Esquire also highlighted the impact of such
sudden Rand movements. “In the ICT distribution market, a 1% shift in price in
any direction can have a real impact on profits,” Esquire said. “Careful
forward planning is necessary and one has to try and peg the Rand at a certain
trading rate over a period of time, such as taking a three month view.”
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“It makes it more difficult. But one should not
expect business planning to ever be easy. There are always unexpected
occurrences which sometimes necessitate a modicum of improvisation.”
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