We recently saw a social media post from a business in which they reference 'currency surcharges'.
We don't mind referencing the business by name because this post is not a critical one...but, we are going to use this phrase ('currency surcharges' - one with which we are not actually familiar) to frame the answering of questions about how to protect margin, manage supply chain payments and ensure your customer doesn't pay more because of currency fluctuations.
If nothing else this post will hopefully show Scammell Interiors that their social media marketing is resonating with an audience and, for reasons we will attempt to elaborate on, we hope you pay them and their site a visit because, if what we think they're doing is in fact being done, you'd be getting a very competitive and conscientiously priced kitchen.
Their post exclaimed 'Beat the Euro' by avoiding such charges.
Our interest was peaked for more than one reason...:
First off, what is a 'currency surcharge'?
Second, how does one 'beat the euro'?
And thirdly, could this business be a potential customer of ours?
Let's address point 3 first: Given that social media is largely rather faceless and, on the basis that we make a point of not 'cold calling' any prospective business customers, we'll just have to hope that our reputation reaches the poster/tweeter in this instance...because we won't be reaching out directly (on principle).
If any of you happen to know Scammell Interiors in York, hook us up!
And so, our ability to answer the other two questions is impaired a tad because we only have assumption as our informant/guide.
We don't know whether this company is using an FX firm like us. If they're like most of their peers (in the interiors space) the answer will be a resounding no, but, they seem self aware and have already touched on issues relating to currency so we may well be wrong.
What we can do though is tell you how they would/should be using one and then comment on the extent to which doing so would enable them to invite you to 'beat the euro' with them.
We've all heard about how the manufacturing base in the UK has been eroded over the years.
Whilst we won't go in to it, being part of the EU has accelerated this erosion, so it will be interesting to see what businesses and industries spring back to life once free movement or people, capital and goods are no longer characteristic of our trading relationship with our continental neighbours.
It is common place for UK design and distribution companies to import wears such as kitchens and furniture from manufacturers abroad.
We suppose that there are a couple of business models prevalent across the KBB (Kitchens, Bedrooms, Bathrooms) sector...
The first is a UK business holding stock from certain brands and selling or installing it as and when a client selects from the list of what you carry.
This model means that a business can restock various lines based on demand or based on supply, in that if oversupply of a particular line results in a drop in it's cost, such businesses can make a saving by buying more. They have to be careful not to buy more than they might reasonably need, but, that is more of a cashflow concern than anything else.
It might also be that the rate of exchange if favourable which would equate to a real terms drop in the cost in the local currency of the importer.
The second model, used by a number of interior design businesses, is the direct sale.
This is a scenario whereby either the client or the designer (having taken payment from the client) buy the piece or item for a particular project.
These designers do not want to hold stock.
Nor do they want to carry the exposure associated with buying items prior to a client paying them for those items. Essentially, interior design firms might/can simply connect the client with the manufacturer directly, or with a uk importer directly, and leave them to their own transacting.
Consider though, regardless of which business model is being used, the foreign currency cost of the kitchen, bathroom, sofa etc..... does not change unless the manufacturer modifies their pricing in line with demand.
If you are importing from Europe, the overriding thing that will determine how much you pay for something is in fact the rate of exchange which, minute by minute, day by day, month by month will rock up and down to a greater or lesser degree.
Whether an interior designer, an importer/distributer/installer, or a retail customer, the cost of the unit remains fixed in the foreign currency, but, the cost in the local currency fluctuates.
How then can the person buying the item (this figurative item) from abroad ensure that they won't have to pay more tomorrow than they might do today?
Well, they speak with a firm like Prime Cap (ha)....No, seriously! They speak with us about locking in and fixing the rate of exchange so that whether you pay for the item today or 3 months from now (or 1 year from now) the GBP cost will not have risen.
Putting to one side the use of the term 'currency surcharge'...we can only assume that Scammell Interiors has either bought the items they're selling at a rate of exchange soooo much higher than the current rate that they can afford to sell the item at a discounted GBP cost, or, they have taken out a forward contract, long dated, that means they do not have to change the GBP cost of the unit/item in line with the rate of exchange as it moves.
What we find confusing is that the product is German.
Scammell are quite clearly stating that they source and supply German kitchens and yet, you, dear customer, don't have to worry about the fact that a product made outside the UK (and therefore valued in euros) is in fact valued in euros.
We do not understand how currency fluctuations and costs can have no bearing on Scammell's calculations.
As we type we realise that it could be the case that Scammell Interiors work only with German Kitchen brands who hold GBP denominated accounts in the UK, therefore, neither the customer nor Scammell Interiors have to worry about the foreign currency margins that might or might not be included.
To this we simply say that, wherever there is a currency exchange - whether at the front end (so relating the cost to trade customers or retail customers) or at the back end (for the Kitchen brands repatriating the GBP earnings) there is a cost...and you can be sure that the kitchen brand won't be bearing it.