Daily Management Review

U.S Retailer Business Sector Looks Forward To Optimize The Low China Market Rates


The Chinese devaluation prods the U.S based retailers to change their business strategies, whereby benefiting from the cheap market rates.

After the devaluation of yuan which led to lower manufacturing cost in the Chinese industries, many U.S. retailers like “Toys R Us” are in the process of negotiating with their suppliers in China so as to reap the full benefit of the low price market. It is a preparatory step, as claimed by U.S. retailers, whereby they are covering their grounds to meet any further devaluation of “China and other Asian” currencies against the dollar.
The devaluation of Chinese currencies that took place earlier this month was effected in an attempt to relax its “controlled currency” and help to boost growth and increase “flagging exports”. On the 11th of August 2015, the value of yuan was cut down by nearly two percent which marked “the most significant downward adjustment” ever since the year of 1994. Consequently, the import market from China became cheaper. Moreover, so far, the currency in China fell by 3.2% against the dollar strength.
As reported by Reuters:
“The cheaper yuan offers the chance for retailers to buy more with dollars, with a knock-on effect in other supplier nations eager to remain competitive. After China's move, Vietnam devalued the dong by 1 percent while the Malaysian ringgit dropped to a 17-year low, its largest one-day loss in almost two decades”.
The chairperson of “Krinsky&Drogin LLP's international”, Giuliano Iannaccone stated:
"Most U.S. retailers have dollar-denominated annual contracts with provisions that allow them to renegotiate if the currency moves outside of a pre-established range”.
According to him, some retailers will take immediate benefit of the situation whereby utilising “those clauses” while others will likely to wait till the nest year, when they can enter the market “with a stronger bargaining position”. The company of Toys R Us falls in the first category whereby it has already engaged itself with its supplier given the fact that their contracts are “dollar-dominated”. Considering the picture, a senior official of Toys R Us sates:
"The bigger question is what's next from China and how will that impact other countries where we procure from?"
The company is expecting future devaluation of other Asian countries like Japan, Philippines, Malaysia besides other countries which will be beneficial to them as they receive supplies of “baby products such as strollers” from these countries. China is considered “a big supplier” even in other companies like Best Buy Co Inc, whereby the chief executive, Hubert Joly remarks:
"We annually review vendor agreements in the fall..and expect benefits from the devaluation when those talks begin”.
On the other hand, the chief financial officer of Home Depot Inc, Carol Tome informed on behalf of the company that it “has identified potential cost benefits” as the China revised yuan’s value. Likewise, it looks forward to pursue trade with Chinese suppliers. The list of items procured by the company from the Chinese supplier belt is hardware, various accessories like fans, fixture, bath, lighting and other such tools.
The Livingston International’s Steve Preston remarked:
"The currencies of all our big trading partners other than China have become substantially cheaper and if they continue to become more attractive businesses will start changing their buying patterns”.
Source(s): Reuters.com