Sterling has depreciated against the US dollar and the Euro since the referendum in June, hitting a 31 year low against the dollar in October. At time of writing, the exchange rate had climbed following hints from Theresa May that she will be looking for a transitional Brexit deal that will favour British businesses. However sterling is still comparatively weak, which presents some challenges for merchants and distributors. For example, the price of imported construction materials is predicted to increase by 3%. It also means that inflation may increase, which adds to the uncertainty we are facing.
But challenging times also present opportunities. Here are six things that merchants and distributors can do to mitigate against, and even benefit from, the economic situation:
- Source more from UK based suppliers: It is only imported goods that are affected by the weak pound, so now could be the time to seek out new suppliers, or increase the proportion of goods you currently source from existing UK suppliers.
- Negotiate better prices with non-UK based suppliers: Your suppliers will be aware of the situation and won’t want to lose a valued customer, so should be open to deals. Consider what you could offer in return: could you take a higher volume or agree a longer contract?
- Negotiate long term contracts: Building on the last point, if you agree a long term contract, you will be insulated from the uncertainty of the fluctuating exchange rate. This applies not only to contracts with your suppliers, but also with your customers – there is an opportunity to lock them into contracts that reduce uncertainty for them too.
- Maintain pricing to customers by improving efficiency: If you have taken a hit on the cost of imported goods, are there ways you can cut costs internally, so you don’t have to pass on higher prices? Can you reduce paperwork by automating any manual processes? Can you streamline processes across different department or branches? Do you know where the inefficiencies are so you can improve?
- Differentiate through depth of stock: As prices will undoubtedly rise on imported products, there is an opportunity to optimise your stock, and understand which are the best SKUs and product variations to carry for future profit, and service opportunities.
- Grow your export business: The flip side of the exchange rate challenge is that there is a benefit for companies that export. If you already have an export business, this is the time to focus on growing that business. If not, why not? If you have products in your portfolio that suit, this may be the time to consider growing your market.
Making these business changes is easier if you have a fully integrated trading and business management system, that gives you:
- Visibility of business processes, so you can see where changes can be made.
- Easy access to management information, so you can track the success of the changes you implement.
- Automation of manual tasks, to reduce paperwork and increase efficiency.
- Ability to manage your suppliers and optimise the supply chain.
- Ability to manage customer relationships and create individual contracts and marketing.
- An ecommerce site to sell to customers in other countries.
- Ability to forecast demand and optimise stock levels.
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