To deal with the impact of exchange rate fluctuations of imported home textile products

Introduction

Recently, our company found a problem in the process of home textile products, which aroused my attention. The cause is as follows: a customer asked me, Jack, the exchange rate is unstable now, could you please wait until I receive the payment? Our company has certain requirements for the account period, the customer has not cooperated many times, and there is generally no account period if it is trustworthy. But this client had a very unique reason for asking for payment, and it got me thinking. Reminds me of the time when I was doing business, the first time I signed a contract with a customer with an account period, at that time I stared at the exchange rate every day and calculated the accuracy of my estimation. Whenever I see the exchange rate fluctuations, I feel that my mood changes with the exchange rate.

In fact, now it seems that I basically have no exchange rate risk avoidance, and I am completely the recipient of exchange rate fluctuation risk, so how should I do a good job in preventing exchange rate fluctuations?

The impact of exchange rate fluctuations on imported home textile products

(1) Cost level

Purchase cost fluctuation: The purchase of imported home textile products is usually settled in major international currencies, such as the US dollar, the euro, etc. When the local currency depreciates, the same amount of foreign currency needs to pay more local currency, which directly leads to a significant increase in procurement costs. For example, I purchased a batch of bedding from Europe. Originally, the total price of the order denominated in Euros was 100,000 euros. At that time, the exchange rate of euro to RMB was 1:7.5, and the cost was 750,000 yuan. If the euro appreciates after a period of time and the exchange rate becomes 1:8, then the RMB cost of the order will soar to 800,000 yuan, and the cost will increase by 50,000 yuan, or 6.67%. Such fluctuations in procurement costs will reduce my profit margin, and I may face the risk of loss if I cannot effectively pass on the cost.

Changes in transportation costs: International logistics transportation costs are mostly settled in US dollars, and exchange rate fluctuations also affect transportation costs. The depreciation of the local currency makes the transportation cost increase after being converted into the local currency, further increasing the cost burden of imported home textiles. In addition, the price of fuel is affected by the exchange rate, if the dollar appreciates, the price of fuel in dollars rises, and the transportation company may increase the freight, which indirectly leads to the increase of the transportation cost of imported home textiles.

(2) Pricing level

Price adjustment dilemma: exchange rate fluctuations cause cost changes, and most imported home textile dealers face a dilemma. On the one hand, if the price of products is directly raised to cope with the increase in costs, the price competitiveness of products in the market may be weakened, resulting in a decline in sales. Especially in the home textile market competition is very fierce, our product consumers are more sensitive to the general price, the price of a small change may affect their purchase decisions. On the other hand, if the original price is maintained, the dealer’s profit will be compressed, and even a loss may occur. Once our company exported a pure cotton sofa cushion, the purchase cost increased by 10% due to exchange rate fluctuations, if our customers will increase the price by 10%, the original sales of 1000 products this month, may cause the price increase to drop to 600 monthly sales, sales revenue decreased.

The stability of the price system is damaged: in fact, frequent exchange rate fluctuations make it difficult to stabilize the price of imported home textile products, and it is difficult for dealers to develop long-term reasonable price strategies. Consumers’ price expectations have also become blurred and may take a wait-and-see attitude, affecting the stability of market demand. For some high-end imported home textile brands, frequent price changes may also damage the brand image and reduce consumer trust in the brand.

(3) Sales and marketing level

Increased market demand uncertainty: Price uncertainty caused by exchange rate fluctuations makes consumers more cautious about the purchase decision of imported home textile products. For some home textile products with strong substitutability, consumers may turn to domestic or other brand products with relatively stable prices. For example, when the depreciation of the local currency causes the price of imported home textiles to rise, some consumers may choose to buy domestic well-known brands of home textiles with more affordable prices, thus affecting the market share of imported home textiles. In addition, the uncertainty caused by the macroeconomic environment due to exchange rate fluctuations may also lead to a decline in consumer willingness to consume, further inhibiting the demand for imported home textiles market.

Increasing pressure on sales channels: imported home textile dealers cooperate with various sales channels, such as shopping malls, specialty stores, and e-commerce platforms. Price problems caused by exchange rate fluctuations may lead to conflicts with channel providers. Channel operators may require dealers to maintain the original supply price, or give more price subsidies, in order to ensure their own profit margins and product competitiveness. If the dealer cannot meet the requirements of the channel operator, it may affect the cooperation between the two parties and even lead to the loss of some sales channels.

(4) Profit level

Profit margin compression: The combination of rising costs, pricing constraints and market demand fluctuations and other factors, the profit margin of imported home textile dealers has been severely squeezed. In the case of unfavorable exchange rate fluctuations, even if the sales volume remains unchanged, the increase in costs and the difficulty in raising prices will significantly reduce profits. If sales volume is affected at the same time, the profit decline will be more significant.

Difficulty in profit forecasting: The unpredictability of exchange rates makes it difficult for imported home textile dealers to accurately forecast profits. The traditional financial budget and profit forecast models lose their effectiveness in the environment of frequent exchange rate fluctuations, and it is difficult for enterprises to make reasonable development planning and investment decisions. This increases the risk of enterprise operation, may lead to unreasonable allocation of resources, and affect the long-term development of enterprises.

Strategies to deal with the impact of exchange rate fluctuations

(1) Optimize procurement strategy

Diversified sourcing: In order to reduce the impact of single currency exchange rate fluctuations on procurement costs, imported home textile dealers can expand procurement channels and purchase products from multiple countries and regions. The exchange rate fluctuations of different countries are not completely synchronized, and the exchange rate risk can be balanced to a certain extent by diversifying the purchasing places. For example, dealers originally purchased home textile products mainly from the United States, if the US dollar continues to appreciate, they can appropriately increase the proportion of purchases from Europe, Southeast Asia and other regions, using the difference in currency exchange rates in different regions to reduce the overall procurement cost.

Flexible adjustment of purchasing timing: pay attention to the exchange rate trend, increase the purchase volume when the exchange rate is relatively favorable, and reserve inventory in advance. For example, through the analysis of macroeconomic data and exchange rate trends, it is predicted that a certain foreign currency will depreciate in the future period of time, and dealers can arrange procurement plans in advance, complete procurement before devaluation, and reduce procurement costs. At the same time, reasonable control of inventory levels to avoid excessive stockpiling of goods resulting in overstocking of funds and increased inventory risks.

Negotiate pricing mechanism with suppliers: Establish long-term stable cooperative relationship with suppliers and negotiate flexible pricing mechanism. For example, the use of price adjustment clauses to periodically adjust purchase prices in response to exchange rate fluctuations; Or agree to settle part of the payment in local currency to reduce exchange rate risk. In addition, it can also share the cost changes caused by exchange rate fluctuations with suppliers to realize risk sharing and benefit sharing.

(2) Optimize supply chain management

Shorten the supply chain cycle: reduce the intermediate links, optimize the supply chain process, shorten the time cycle from purchase to sales. In this way, the impact time of exchange rate fluctuations in all links of the supply chain can be reduced and uncertainty can be reduced. For example, by establishing direct relationships with suppliers, reducing the trader link; Adopt advanced logistics distribution methods to improve transportation efficiency and shorten the transit time of goods.

Establish a local inventory center: Establish a domestic inventory center to reserve a certain amount of best-selling products in advance. When exchange rate fluctuations lead to increased procurement costs, inventory buffers can be used for a period of time to avoid immediate price adjustments and stabilize market prices and sales channels. At the same time, according to changes in market demand, flexibly adjust the inventory structure and improve the inventory turnover rate.

Strengthen supply chain collaboration: Strengthen information sharing and collaboration with suppliers, logistics providers, sales channels and other aspects of the supply chain. Jointly deal with the risks caused by exchange rate fluctuations, for example, negotiate with logistics providers to adopt relatively stable billing methods when exchange rate fluctuations are large; Work with sales channels to develop marketing strategies to cope with price changes and enhance the overall risk resistance of the supply chain.

(3) Adjust marketing strategies

Product differentiation and brand building: Increase investment in product research and development and innovation, and launch home textile products with differentiated competitive advantages. By improving product quality, design sense and functional features, increase the added value of products and enhance the sensitivity of consumers to price. At the same time, strengthen brand building, enhance brand awareness and reputation, and cultivate consumer loyalty. The promotion of brand influence helps consumers remain willing to buy and maintain market share even when the price rises due to exchange rate fluctuations. For example, an imported home textile brand launched bedding with intelligent temperature control function, with unique product advantages, even if the price has risen due to exchange rate fluctuations, it is still favored by consumers.

Market segmentation and precision marketing: carry out in-depth market research, segment market demand, and formulate precise marketing strategies for different consumer groups. For example, for the high-end consumer groups, emphasis on product quality and brand connotation; Launch cost-effective product portfolios or promotions for price-sensitive consumer groups. Through precision marketing, improve the market response speed and reduce the impact of exchange rate fluctuations on sales.

Expand online sales channels: With the popularity of the Internet, e-commerce platforms have become an important sales channel. Online sales have the advantages of low cost, wide coverage and flexible price adjustment. Imported home textile dealers should increase the expansion of online sales channels, timely adjust product prices through e-commerce platforms, and quickly respond to exchange rate fluctuations. At the same time, the big data analysis function of the online platform is used to deeply understand consumer needs and behaviors, and optimize product promotion and sales strategies.

(4) Financial management optimization

Strengthen the construction of exchange rate risk management system: establish a special exchange rate risk management team or post, responsible for tracking exchange rate trends, assessing exchange rate risks, and formulating corresponding coping strategies. Improve the exchange rate risk management system and process, clarify the responsibilities and authority of various departments in exchange rate risk management, and ensure the effective implementation of exchange rate risk management.

Optimize the capital structure: rationally arrange the proportion of local currency and foreign currency funds, reduce the scale of foreign currency debts, and reduce the impact of exchange rate fluctuations on debt costs. At the same time, optimize the revenue and expenditure management of funds, try to match foreign currency income and expenditure in time and amount, and reduce exchange rate risk exposure. For example, for dealers with foreign currency income, part of the foreign currency income can be retained to pay for foreign currency purchases, reducing the number of foreign exchange.

Financial budget and risk early warning: Improve the financial budget system, take full account of exchange rate fluctuations, and formulate reasonable financial targets and budget plans. Establish an exchange rate risk early warning mechanism, set a critical value of exchange rate fluctuations, and start corresponding countermeasures in time when exchange rate fluctuations reach the early warning line to reduce risk losses.

Conclusion

Exchange rate fluctuation is an important risk factor that imported home textile dealers face in the business process, which has a multi-dimensional impact on procurement cost, pricing strategy, sales market and profit. However, through a series of measures such as rational use of financial instruments to avoid risk, optimization of procurement strategies, strengthening supply chain management, adjustment of marketing strategies and optimization of financial management, dealers can effectively reduce the adverse impact of exchange rate fluctuations and enhance the enterprise’s anti-risk ability and market competitiveness. In actual operation, different enterprises should choose appropriate coping strategies according to their own business scale, business characteristics and risk tolerance, and constantly optimize and improve the risk management system. At the same time, pay close attention to the international economic situation and exchange rate trend, timely adjust the business strategy to adapt to the complex and changing market environment, and achieve the sustainable development of imported home textile business. In the future, with the in-depth development of global economic integration and the constant changes in the international financial market, imported home textile dealers need to continue to improve their ability to manage exchange rate risks in order to remain invincible in the fierce market competition.