Volatile rand causing havoc for computer hardware distributors
South African computer hardware wholesalers use various mechanisms to manage the impact of volatile exchange rates on their businesses.
The rand’s value to foreign currencies — particularly the US dollar — has fluctuated significantly since the start of the year.
On 1 January 2024, one US dollar cost R18.30. Then, the rand strengthened significantly for two days, reaching R17.32 to the US dollar.
After the brief recovery, the rand retreated to around R19.30 per dollar towards the end of February — its weakest point so far this year.
It has fluctuated between R19.30 and R18.27 since. It was nearing R19 again in the first week of June.
As South African PC hardware wholesalers import many tech-related and other products, they are vulnerable to exchange rate volatility.
MyBroadband asked Esquire, Mustek, and Syntech about how they manage the impact of volatile exchange rates on their operations.
Mustek’s managing director, Neels Coetzee, said rand volatility significantly impacts its operations, but the company focuses on the aspects of its business it can control.
“Mustek imports most of its products, and thus, the rand volatility impacts Mustek in a number of ways, including cost management, pricing strategy, and forecast planning,” said Coetzee.
However, he noted that predicting exchange rate fluctuations is complex and risky.
“Whilst it does play a role in our working capital management strategies, Mustek manages its margins by adjusting selling prices in line with exchange rate fluctuations and thus the net realisable value of stock would increase if the rand weakens in comparison to the rate at the time the stock was brought in,” said Coetzee.
“Prediction of exchange rates is a very tricky and risky game, and Mustek rather focuses on elements within its control and has hedging processes in place to manage exchange rate exposures.”
Hedging is when a company commits to buy or sell a product at a set quantity at a set price, also known as a future or forward contract.
The wholesaler previously told MyBroadband that it also uses currency options, or capped forwards, to mitigate the impact of exchange rate fluctuations.
According to Investopedia, a capped forward involves a firm buying a “synthetic off-market currency forward” and another option. This provides the benefit of favourable exchange rates.
“When the underlying asset closes at or beyond a specified price, the option automatically exercises,” it says.
Esquire and Syntech hadn’t answered our questions by the time of publication.
Retailers also feel the pinch
Dreamware Tech and Wootware previously told MyBroadband that fluctuating exchange rates can impact their businesses.
When the rand weakens, customers shift their buying habits and become more frugal.
Dreamware Tech director Brent Raftopoulos said sales numbers aren’t directly impacted. However, he said customers tend to err on the side of frugality when ordering.
To this end, customers shift to more budget-oriented purchases, often forgoing the “frills” offered by more expensive products.
For example, he said customers ordering motherboards tend not to worry about the board’s aesthetics, with specs taking precedence.
Raftopoulos said the rand-dollar exchange rate will always impact hardware pricing, which directly affects consumer buying behaviour.
“We often have customers enquiring as to why a specific item has increased in price,” he said.
“Naturally, when this occurs, we lose a sale due to the customer either being forced to save longer or abandoning the order entirely as they no longer deem the purchase worthwhile.”
Wootware founder Rory Magee said that although exchange rate fluctuations affect sales, he believes product release cycles have a greater impact.
He explained that it is difficult to pinpoint or quantify the impact on sales.
“I would say that the product release-cycle cadence has a much greater effect on sales overall in our market,” Magee added.
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