PC prices are set to increase by as much as 15% from this week, as distributors and importers cannot afford to absorb a sharply devalued rand, and have no choice but to pass higher prices onto end-users.
The sharp devaluation of the rand is hitting the sector as it gears up for festive season and back-to-school spending. Consumers will feel the brunt of the increase, as they are already cash-strapped as inflation rises and economic growth slows.
The rand has plummeted by about 18% against the dollar since the beginning of this month alone and is now trading at about R8.20. However, distributors are already paying a forward rate of about R8.40, and are being forced to pass higher prices onto end-users as they simply cannot afford to absorb the increase.
As a result of higher prices, some importers may hold off on bringing in new stock until the rand strengthens again, which traditionally happens towards the end of the year, which could lead to out-of-stock situations.
In addition, consumers will get less value for their money as importers bring in lower specification machines in a bid to keep entry-level prices down. IDC estimates that about two million desktops and notebooks are bought each year, of which 40% are desktops.
Taking stock
The Notebook Company MD Christopher Riley says consumers can expect a “price shocker” as the massive swing in the rand occurred very suddenly and took the sector by surprise. Retailers and distributors cannot afford to absorb the hike and the additional cost will be passed onto end-users, he adds.
As a result of the recent recession, some distributors and retailers have low stock holdings, notes Riley. He explains that the last time the rand tanked, there was more inventory on hand and the effect took longer to filter through.
Riley says the cost of notebooks will start moving higher from this week, as direct imports will feel the dramatic price increase straight away. He is concerned that the slow economic recovery, which led to a freeze on PC refresh rates, will be pushed backwards and spending will slow down or stop again.
“Consumers are still suffering from high levels of indebtedness - and companies are still being cautious about capital expenses.”
About two-and-a-half years ago, when the recession that wiped out global companies like Lehman Brothers hit, companies pulled the plug on spending, says Riley. He believes the devaluation of the rand will lead the sector into a similar situation again.
In addition, distributors will be reluctant to stock up when prices are so high, and may wait for the rand to regain some lost ground, comments Riley. This could lead to out-of-stock situations. “I hope I'm totally wrong.”
Immediate increase
Tarsus CEO Pierre Spies says the average price of what the company is landing now will be at least 15% more expensive, because the rand has devalued so sharply. He adds that the forward cover rate, which distributors take out as a hedge against currency fluctuations, is already R8.40 to the dollar.
Although the increased prices will take a bit longer to filter through to end-users, corporates have defined budgets and will buy fewer units, notes Spies. He says volumes have not yet been affected.
Spies says the channel may see a decline in unit numbers, although revenue will go up because of the higher selling price. The impact in unit numbers will be seen in about November, he adds.
Although there are backorders in the system that will not be affected, any new projects will be impacted, comments Spies. He says the increase will be “very negative for the sector”, which cannot afford to absorb the increase.
David Kan, CEO and founder of Mustek, says all importers are putting prices up based on the weaker rand, and Mustek increased its prices on Friday. As stock on shelves clears, consumers will start seeing the effect of increased prices, which may hurt volumes, he adds.
Less value
Hannes Fourie, IDC senior analyst for systems and infrastructure solutions, says the increase will be seen in the fourth quarter of the year, which is usually a big consumer buying time because of back-to-school purchases and the festive season.
Vendors will bundle their offerings differently, believes Fourie. He says this will mean that consumers will get less value for their money.
Fourie says the rand usually strengthens towards the end of the year, and some importers may hold off buying until then. The effect is likely to be limited to the short-term, although it will hit groups with lower stock holdings harder than those with big inventories.
Chris Gilmour, Absa Investments analyst, says the rand has depreciated about 18% to the dollar since the start of the month. It is currently at about R8.20, compared with just more than R7 to the dollar earlier this month, he points out.
Gilmour adds the effect will be most felt by cash-strapped consumers. Corporates are likely to continue spending if they must replace equipment, he adds.
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