Record dollar fails to drive prices down
- 10 October, 2007 15:47
The rise of the Australian dollar to $US0.90 is being heralded as a major plus for local consumers, but don't expect a red line to be slashed through product price tags tomorrow, several industry representatives claim.
The Australian dollar hit a 23-year high against the US greenback last week. It represents a jump of over 10 per cent over the past six months. Despite the better exchange rate, Dicker Data sales manager, Chris Price, claimed vendors had kept pricepoints up. However, he predicted prices could be adjusted in the longer term if the dollar held onto its record-breaking position.
"We've been sitting around $US0.82-$US0.85 for a while, but hitting $US0.90 is fairly new, so it's wait and see," he said. "For a vendor, if you lower prices, your competitor lowers their price, which only gives short-term gains. "There will be a correction at some point, because vendors have to have worldwide equivalency on their product. Otherwise they're promoting unhealthy activity in the market. And vendors will correct this locally if they feel threatened."
Price suggested vendors had instead chosen to launch new incentive programs to attract consumers. "Vendors have a bigger marketing kitty [through the improved Australian dollar] to target new customers or to switch from other vendors," he said. "The stronger dollar gives them much more flexibility for rebates and programs."
Plus Corporation managing director, Nigel Fernandes, also reported vendor prices remained constant. "There's been a drop on memory and video cards, but everything else is the same price at the moment," he said. "I don't think we'll see it affected for a while." EMC general manager of commercial and channel sales, David Henderson, played down the impact of the strong Australian dollar, claiming most of the major vendors set local pricing using a strict timetable and locked in dollar value.
Another factor which determined the cost of goods was how much hedging and forecasting vendors operated on, he said.
EMC sets its price lists on a quarterly basis. "It's going to have a ripple effect, rather than be a tsunami," Henderson said. "Everybody plans in blocks of time. We could see a difference in pricing over the next six months, but you also have to take into consideration the technology advancements and feature sets you're getting.
"From where we sit, we look at how competitive we are in the Australian marketplace, and our pricing is competitive right now. If our dollar does continue to stack up though, customers will see either better value or lower prices."
Similarly, HP personal systems group manager for commercial products, Rob Kingston, said its pricing decisions were based on the competitive landscape. While there was no movement yet, he predicted product prices could fall in the next month or two.
Page Break"There is a threshold around the rate of the dollar where vendors choose not to move pricing, but people also have expectations things will move, which can affect decisions," he said.
Ingram Micro managing director, Guy Freeland, said products such as OEM components were affected faster than other areas.
"Even six months ago, prices were much higher, so it does flow through," he said. "Most international manufacturers lock in the cost of their components, sometimes months in advance, which means it takes a while for prices to adjust on built products."
Express Data managing director, Ross Cochrane, had found US-based vendors were changing pricing regularly. "Any vendors setting their own Australian prices have had to move technology over time. No one wants to wait one year for pricing to change," he said. "In the last year, the Australian dollar has moved by more than 15 per cent."
While product pricing is one issue, some industry leaders argue the rise of the dollar also ushers in new challenges for the channel.
Cochrane said one difficulty distributors faced was reporting pricing changes back to customers.
"It's more work for the channel because the dollar moves around so quickly," he said.
Another big risk was holding onto ageing stock purchased at a lower exchange rate.
"It's a case of having to manage inventory effectively," Cochrane said. "You can't run a distribution business without inventory - it has to be a major focus. It's about getting the mix right and not letting stock sit around. You have to find ways to make it move or it goes off quickly."
Cochrane also pointed out cheaper goods meant resellers needed to sell more products to make financial targets.
"If the price has gone down by 10 per cent, that's 10 per cent more you have to sell. You have to hope consumers realize hey are getting a better deal and buying more," he said.
But despite these concerns, both Cochrane and Freeland were optimistic about overall market conditions.
"For distributors in the middle, whose costs are Australian-dollar based, and whose margins usually run as a small proportion of the selling price, it does put the squeeze on us," Freeland said. "Weighed off against that, you hope that heaper IT prices for the end users will encourage them to buy more."
Cochrane argued pricing was the lowest had been for 23 years.
"Not only is technology getting cheaper because of consolidation, but the Australian dollar is strong at the same time," he said. "Consumers have been buying direct from the US because they think they get a better deal, but that's shortsighted.
People used to buy notebooks from the US because they were cheaper - now you're getting good buys in Australia." Westpac currency strategist, Jonathan Cavenagh, said the Australian dollar should stay at similar levels against the US dollar for the rest of the year, then climb again early next year.
According to the Australian Information and Industry Association (AIIA), this will give local companies more leverage to attract international talent to local shores.
"The longer we stay on par with the US, the more significant advantages we have in attracting talent to this country for example," CEO, Sherlye Moon, said. "Our service providers rely on people doing higher skilled work. If we can attract more overseas talent to our shores, everybody will be better off."
But those companies exporting their goods overseas could find competition even tougher, Moon said.
"Those in the hardware, software and services space trying to get brand recognition know it can be difficult - now they also have to deal with the fact they're not cheaper than their [overseas] competitors," she said.