Half of all small retail businesses were negatively affected by foreign currency moves in 2010, according to a new report by foreign currency specialists HiFX.
And, nearly two thirds (64%) of all retail SMEs cite the strength of sterling as their biggest worry for 2011.
However, three quarters of retail SMEs are confident about their company’s prospects in 2011.
The report examines the effect of the last 12 months of foreign exchange (FX) volatility on Britain’s SME importers and exporters.
It shows that the average retail SME importer or exporter has a turnover of £4.5m and FX exposure of less than £1m.
Of this group, half (51%) admit exchange rate volatility had a negative impact on their operations in the past year. Just 14% stated sterling volatility did not affect them at all.
Mark Bodega, director at HiFX, said: “A range of global factors influenced FX in 2010 which resulted in the three main currencies UK businesses are exposed to -the US Dollar, Sterling and Euro – all taking it in turns to be the whipping boy of the currency markets.
“Worryingly, more than one in 10 (11%) of all importers had to cut imports last year in order to reduce their exposure to exchange rate volatility going forward. As our report highlights the retail sector was one of the hardest hit with the instability of sterling and a reduced demand for goods two of the biggest worries for retailers in 2010.”
Looking ahead, the retail sector has one of the most positive outlooks for 2011.
Three in four (75%) retail small business owners are confident about their company’s prospective business performance, compared with 65% of all SMEs surveyed. In contrast, one fifth (20%) are not feeling confident about their business over the next 12 months.
The greatest worry among all SMEs for 2011 is the reduced demand for goods and services (49%). However, in the retail sector currency fluctuation is keeping 64% of retail SMEs awake at night, followed by reduced demands for goods and services (54%) and the costs of business and banking services (35%).
Bodega said: ‘It is encouraging to see a large proportion of SMEs in the retail sector are positive about the outlook for 2011. However, for those still concerned about volatility it is important for them to make sure they get the best deal on their foreign exchange. The current volatility in the markets may mean that those benefiting from a move in sterling could just as quickly see a change in their fortunes.”