Fashion brands affected by volatile currencies

As the majority of fashion companies export their goods, the costs, sales and profitability of their brand can suffer when there is a high fluctuation in currencies.

Devaluation of the rouble at the end of 2014, for example, saw companies like Zara, Adidas, New Look and River Island all close stores in Russia.

One way to combat currencies woes during devaluation is to increase prices, however this can also lead to a decrease in sales as consumers react by stockpiling, curbing their spending, or shopping abroad.

Brands selling across multiple currencies are feeling the pinch

This week several fashion companies importing, exporting and selling goods across multiple currencies told Drapers they are feeling the effects of the stronger pound against the euro.

Fashion companies buying fabrics and trims from the continent will find the euro favourable, but exporting clothes is making their garments more expensive abroad.

Last week the pound climbed to a seven-year high against the euro, with 1 pound equivalent to 1.35 euros. However, it has weakened against the dollar, now standing at 1.53 dollars compared with 1.72 dollars in July 2014.

Financial experts are stressing the need for business strategies and agreements that limit the impact of currency volatility, such as hedging and forward contracts that lock in favourable exchange rates in advance.

Another solution is to start trading in multiple currencies. Having dollar, euro, and sterling bank accounts and trading in these currencies also helps to combat the effects of fluctuation.

Alex Bennett, fashion business specialist at foreign exchange provider Smart Currency Business, told Drapers: “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.”

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