Rand puts squeeze on IT margins - TechCentral

Rand puts squeeze on IT margins

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The rand has taken a beating in recent weeks, falling through the R10/US$ barrier, meaning consumers can expect to pay more for just about everything in the months ahead, including consumer electronics and other IT products.

The view from business is that the impact will be felt most keenly in the retail consumer segment, whereas businesses are less likely to cut back their spending in the wave of the currency’s volatility.

Justin Drennan, founder of online retailer Wantitall.co.za, says the falling rand has a direct impact on consumers’ demand for electronics. “If the rand drops 30%, we lose 10% to 15% in sales,” he says.

“There’s a few reasons for it, one of them being the general effect on sentiment. As rand falls, sentiment worsens and sales fall. It’s not just about hard costs going up, but people don’t want to make big purchases when there’s a downturn,” Drennan says.

Wantitall.co.za’s turnover remains relatively unchanged in times of volatility, but “margins get squeezed”, he adds. “Some items, particularly small, low-cost ones, remain in demand. But if people have been watching a big ticket item, they’ll wait on it.”

Mustek MD Hein Engelbrecht says June has got off to a slow start, but fluctuations in currency “generally doesn’t affect [Mustek] much”.

“If we look back, some of our best years have been those where the exchange rate is bad, like 2003,” Engelbrecht says. “It will affect volumes somewhat, but with corporate customers they tend to have a budget for IT equipment. If they could, for example, buy 10 000 units last year, they’ll still spend the same money and buy 9 000 units now.”

Similarly, Engelbrecht says that in instances where companies need a certain amount of IT equipment, such as for use in a specific project, they find the additional funds.

“The consumer side is somewhat different. But even there, stores try to keep prices at a certain point, for example, at R2 999. They might have to increase that to R3 299 eventually if the currency doesn’t recover.

Engelbrecht says currency volatility creates margin squeeze for companies that focus on the retail consumer market.  — (c) 2013 NewsCentral Media

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