PC price hike on the cards

The cost of PC products across the board will increase as the rand has lost significant ground against the dollar over the past few weeks.

Price hikes could be as high as 8% in the next few weeks, unless the currency gains value, as cheaper inventories are sold out. In addition, other price pressures, such as the cost of fuel and salary expectations, mean increases will have to be passed onto end-users as the industry cannot afford to have its thin margins eroded further.

As a result, sales volumes are expected to decrease slightly as end-users have limited budgets, while some customers may negotiate harder or move to cheaper brands. However, the sector hopes the rand will move back into stronger territory, aiding medium- to long-term volumes.

SA's currency is currently the fourth-weakest globally, as investors move money out of so-called risk areas and into safe havens that provide next to no returns, notes Absa Investments analyst Chris Gilmour.

Gilmour says, with uncertainty over whether the current crisis in Greece will be resolved through elections on 17 June, the rand could continue to lose ground against the dollar.

Markets are worried that Greece may leave the Eurozone, which could turn into another global crisis.

Pierre Spies, CEO of Tarsus Technologies, says most imported products will be impacted by the sharp move in the exchange rate, and the average increase will be between 6% and 8%.

“There are fortunately levels of stock in the country, at the previous exchange rate, but this will be sold into the channel over the next few days or weeks in certain cases,” says Spies. He adds there is little the channel can do to mitigate hikes and the full increase will be passed onto consumers over time.

“History has shown us that there will be a slight decline in volumes as the corporates have a defined rand budget,” says Spies. The channel's profitability will be affected, he adds.

”There has been an increase in activity levels in general and we can only hope that this price increase does not impact the business too much.”

Craig Brunsden, executive director of AxizWorkgroup, expects a 3% to 6% increase on all products, including consumables, within the next eight weeks unless the currency improves. He says the hikes should not affect sales in the medium- to long-term as the rand has recovered from lows before.

Brunsden says about 4% will be passed onto consumers to absorb some of the effects until cheaper stock can be washed through the system. He says price increases cannot be absorbed in the long-term as margins are too thin.

Gary Pickford, MD of ACT, says customers that have budgeted to spend a certain amount on IT and consumables will find the weaker currency challenging, which will lead to more aggressive price negotiations or a shift to cheaper brands.

“This will not be good for the industry in the short-term as it will result in a certain amount of discounting and margin erosion.”

Pickford explains the rand has weakened by 25% over the past year. He says the company tries to keep pricing stable for a period of a month, but, with the low profit margin in the industry, this is sometimes not possible - especially when the rand weakens significantly over a short period of time.

Gilmour explains that the rand is very volatile and may end the day strong, but traders wake up in the morning to find it has “fallen out of bed”. He says this makes it difficult to plan as movements cannot be predicted.

Pickford says it is difficult for ACT to absorb exchange rate weakness as this is a factor totally out of its control. “Unfortunately, the price increase as a result of rand weakness ends up being pushed through the channel and results in the product costing the customer more.”

Pickford adds that the rand is not the only input pressure, as others, especially petrol, are affecting the sector. The company has tried to mitigate fuel costs through efficiencies and aggressive negotiations with courier companies and has so far avoided passing costs on.

However, if the petrol price remains where it is, there will more than likely be an increase to mitigate further margin erosion, he says. Gilmour says expectations are that the cost of fuel may come down on Friday because of cheaper oil.

Spies notes that the consistent increase in the fuel price, insurance and security costs continue to have an impact on the pricing. He says only a portion can be absorbed for a short amount of time, but will eventually affect prices.

Brunsden notes petrol and salary inflation costs are the biggest input costs affecting distribution.