British fashion and lifestyle brand White Stuff is the latest company to report significant profit losses due in part to increasing currency costs. SMEs are therefore being warned to take action now to assess how they can avoid such losses, or else also face the financial burden that can come from a poor foreign exchange (FX) strategy in a volatile currency market.
Paul Langley, managing director of Godi Financial suggests that addressing issues with a company’s FX strategy can reduce financial losses substantially and help create stability for a business’ future.
The fall in the pound has meant importing clothes from Asia has been significantly more expensive for White Stuff compared to the previous year. Although rises in pension and wage costs have also been contributing factors to the company’s fall in profits, its currency burden could have been avoided.
Langley claims that this is yet another example of a business not hedging appropriately when it comes to FX management and subsequently paying for the consequences of such neglect.
It has been well reported that the pound has struggled since the Brexit announcement and the negotiation stages are bringing more uncertainty to the economy. The knock-on effect is a volatile currency market and companies with FX exposure need to act now to safeguard themselves from such a turbulent market.
“We are seeing this time and time again. Not so long ago it was Sports Direct and now White Stuff. These companies have suffered from the decrease in the value of sterling, meaning they have had to pay more for the goods they import and as a result, it has negatively impacted their bottom lines.
“A review of White Stuff’s FX practices would likely reveal that a more robust strategy is needed. A currency strategy review really is integral to companies with FX exposure. They can help companies to better understand the effects of currency fluctuations and transaction fees on their specific business operations. Assessing FX risk and cash flow can also identify how future losses could be avoided and thus create greater stability for a company.
“The currency market isn’t going to stabilise anytime soon. SMEs need to be assessing their FX risk now and preparing for the rocky road ahead with a FX strategy that they understand and are confident will help protect the financial health of their business.”
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