Retail Case Study
A retail goods importer, operating on high volume – low margin, was aware of the profitability impact from relatively small foreign exchange market fluctuations, but lacked the headcount, tools and systems to ensure proactive oversight and hedging policy compliance.
The main challenges were:
- Low operating margins in a very fast-moving retail market segment meant profitability was highly sensitive to foreign exchange fluctuations.
- The business had thus aligned its risk appetite closely to its budgeted foreign exchange rates.
- The business lacked headcount, time to monitor markets and execute appropriate hedging to protect its budget rate on an ongoing basis.
Rochford’s solution included:
- We implemented weekly (at minimum) scheduled calls to discuss current and forecast net exposure across 3 currency pairs.
- We instigated a budget rate setting process that balanced current market levels, existing hedging and realistic appraisal of medium-term trading conditions.
- We continued to provide on-going recommendations on market order levels, product mix and FX hedge book restructuring.
- We also continued to monitor and advise on indirect costing considerations e.g. the effect of CNY depreciation and potential of renegotiating supply contracts.
- FX budget rates are now achievable and realistic, without sacrificing competitiveness.
- Rochford act as the ‘eyes and ears’ on the market to actively identify and communicate event risk, key market levels and trend changes; the resulting proactive FX risk advice and consistent application of policy parameters has shielded the client from market shocks and reactive ‘kneejerk’ hedging decisions.