Covid-19: How can luxury brands use monetary measures to help their companies?

Insights from moneycorp

With the entire world ramping up efforts to control the Covid-19 pandemic, the toll on people’s lives is tragic and wide-ranging, but there is also huge economic uncertainty for both individuals and businesses. Here, Walpole partner moneycorp share insights on how you can use monetary measures to help your company during this difficult time.
2nd Apr 2020
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Covid-19: How can luxury brands use monetary measures to help their companies?  Insights from moneycorp

The impact on people’s health is evident, but there are wider implications on small and medium sized enterprises forced to shut up shop.

Demand for many products and services has drastically fallen as people globally stay indoors and focus on buying essentials. Imports and exports of certain goods are therefore struggling, as is the cash flow of many businesses. Fluctuations in the currency market and a significantly weaker pound have added further pressure to many businesses at an already challenging time.

Whilst we haven’t quite seen a repeat of last Thursday’s hugely volatile swings of over 5% in the currency markets, 2% adjustments in sterling rates now seem to be the norm, which is a very different world to the stagnant first couple of months of 2020. Talking of adjustments (and different worlds), UK PLC has certainly escalated the task of working from home this week in line with government advice as we attempt to stem the rising tide of coronavirus.

As we get used to unusual environments, with kids making coffee and dogs taking notes, life and business has to go on. Supply chains have remained active, if not somewhat adapted, as businesses forge ahead with true British grit. What happens over the coming weeks may be a different story. Budget rates for many importers may now have gone out of the window so they will have to remodel to shape their businesses through a period of weaker sterling which is when proactive hedging and dynamically taking advantage of any market spikes become important. Exporters who still have receipts of foreign currencies to convert into the pound are locking in trades at some historically almost unprecedented rates which will improve their bottom line as long as the global markets stay open.

What help is available for businesses? The UK government has asked all businesses and companies aside from essential shops to close. This includes pubs, restaurants, cafes, gyms, retailers and shops that sell non-essential goods, meaning only the supermarkets and pharmacies are open, albeit a few small exceptions. Prime Minister Boris Johnson and Chancellor Rishi Sunak have introduced The Coronavirus Business Interruption Loan Scheme will allow small and medium sized businesses to borrow up to £5m, offering preferential rates as a 12-month interest-free loan. Larger companies have the option of using the use The Covid Corporate Financing Facility, which the Bank of England is providing. And the government has also promised to pay the wages of employees unable to work, paying 80% of a salary, covering wages up to £2,500 a month. Promising cash grants to retailers, leisure and hospitality firms, the PM says he will, “do whatever it takes to support the economy.”

What can businesses do? Businesses are able to still operate online, taking orders and delivering. One action businesses must do is make sure that you and your staff are safe during these unprecedented times. Implement working from home if possible, which is official government advice. The UK government believes that up to a fifth of the workforce could be off sick at the peak of an epidemic, in a “stretching scenario.” This could put further pressure on the economy during a crucial transition year following Brexit. So it could be a good idea to prepare your business as much as possible for the potential bounce back after coronavirus, and also the regular market volatility right now.

Import/exporting right now, and how to deal with these restrictions Like every other aspect of commerce, supply chains are facing severe disruption due to the pandemic. As well as issues with certain countries closing their borders, factories are closing down across the globe and further challenges are presented by issues relating to transport and storage. On top of all this, businesses are struggling with an abrupt halt to everyday business which is limiting cash flows. The UK government has provided support for businesses that import and export goods, including grants and loans to offset the challenge exporters may face of late payments from clients with limited cash flow, access to a database of alternative suppliers where production has ground to a halt and a raft of measures supporting all businesses with fixed costs including staff if revenue has dropped or ground to a halt. This is particularly important because currency fluctuations are making international trade even more of a challenge; volatility in the FX market makes it difficult to plan ahead for significant fluctuation which is adding another dimension of risk to global businesses.

Can you control the risk of currency fluctuations? There are tools to track, target and even fix a prevailing exchange rate which may mitigate the risk of currency fluctuations. Their effectiveness will depend on the overall currency strategy of the business. It’s important to assess all areas of your business that are vulnerable to fluctuations in the exchange rate – from overseas costs and revenues to international offices, staff and more. The currencies you’re operating in will also indicate your measure of risk. For example, in recent weeks the pound has been weaker and struggling under the pressure of the pandemic but other currencies, such as the US dollar have proven to have more resilience, although not entirely unassailable.

Expert currency support for your business Whilst people now have a million other things to rightfully be concerned about, do try to keep one eye on the financial markets or speak to somebody who will do that for you. This gives you more time to focus on your real priorities in this situation, such as ensuring your business continues to thrive and the morale of your workforce remains intact. Of course also consider all of the government advice and be mindful of initiatives that have recently been made available to help us all navigate these choppy waters. Adapt, stay safe and be patient.

If you want to find out more about how your business might be vulnerable to the risk of currency fluctuations and how to identify those points of risk, download this expert guide from moneycorp on assessing FX currency risk.

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