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Fashion Industry Struggles With Currency Volatility

If ever there were an economic sector that appreciated the phrase “last hired, first fired,” it would be the fashion industry. As a sector regularly defined by luxury (think: Chanel, Rolex, Louis Vuitton, Burberry, Balenciaga), high-end products are often the last purchases we make when times are good and the first ones we nix when times are bad. For fast fashion brands like Zara and H&M, consumer drop-off can be even more acute.

That demand-side volatility (forecast to contract by about 30 percent) is only exacerbated by a global industry that does business in so many currencies, across dozens of nations. And thanks to COVID-19, both the demand and supply side of the fashion industry is reeling.

From a currency perspective, the news could be better, too. Volatility remains high in many exchanges, and currencies like the Russian Ruble, the Mexican peso, the Brazilian real, the South African rand, and the Indonesian rupiah are the most unpredictable. Perhaps the most significant indicator of the global uncertainty we now face is the rising value of gold. Long considered a haven when the word’s currencies have gone awry, the Bank of America recently increased its 18-month gold-price target to $3,000 an ounce. Some predict gold will increase to $5,000 an ounce in the not too distant future.

But buying gold is cold comfort for fashion brands. And stimulating demand is tricky business when most consumers, even those who haven’t lost their jobs or had their incomes cut, are still only tentatively re-engaging other aspects of the cultural economy like dining out and socializing in large public gatherings. Art galleries remain closed, theatres are dormant, and many malls are at least still partially shuttered. Without these societal motivators to get out and enjoy, the inspiration to purchase fashion goods like clothing, watches, and jewelry is lacking.

Navigating the Currency Crisis

As a result of this shock, fashion brands have had to readjust. According to Forbes, western fashion brands have cut $2.8 billion in orders from Bangladesh, and more than 1.2 million workers have been impacted via job loss and furloughs. Nearly two-thirds of suppliers said they would be unable to pay furloughed workers even a partial paycheck, and 80 percent said they would be unable to provide severance pay.

Naturally, all this has a negative currency ripple effect too.

In moments like these, the traditional solution was currency hedging. Locking in an exchange rate over a specific period to avoid wild swings in valuation – fluctuations that could instantly increase a company’s production costs, or devalue the products it sells. Of course, locking in a rate has a significant drawback: what happens when the currency’s value moves in your favor and money that could be saved wasn’t. 

Especially in the post-COVID world, transferring increased costs to consumers is a non-starter. Don’t think so? Just ask Switzerland when in 2015, it divorced the franc from the euro in 2015. The result: Swiss watchmaker Swatch saw a 15 percent jump in costs, and Cartier, also Swiss, lost 14 percent in market capitalization.

While currency hedging will always have its place as a valuable financial management tool, what if small and medium-sized businesses (SMBs) could manage their international contracts in real-time and complete transactions when exchange rates were most advantageous?

“Fashion Forward ” Financial Mindset

With Worldesk, now you can.

Worldesk is a currency management and automation technology for small and medium-sized businesses. Worldesk helps owners and executives navigate the volatile international marketplace with full transparency and the tools they need to save money, reduce exposure, and safeguard profit margins.

Available on Android and iOS devices, Worldesk enables real-time control over several international business needs, including automated payments and receivables, instant currency conversion, foreign exchange management, notifications, and integration with third-party software.

Worldesk also allows for scheduled payments, bill pay due to date alerts, and the ability to lock currency rates connected to specific invoices and incomes.

To its detractors, the fashion industry is frivolous – vanity runs amok. Yet to its billions of supporters worldwide, it is the physical manifestation of personal appearance and style; “Brand You” personified.

In a moment of a global pandemic, where social distancing reigns and our cultural institutions are dark, mutual support of the fashion industry’s continued vibrancy is the most human thing each of us can do.

From an inside-industry perspective, equally important in weathering the post-COVID currency crisis is managing global transactions that maximize profits and minimize exchange rate volatility. Mosaica and its suite of desktop and app-based products are here to help.

Just consider it part of our “fashion-forward” financial mindset.

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