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ECONOMY | 03-11-2018 07:59

Re-pricing becomes a necessity for local firms

The depreciation of the peso against the dollar has forced many businesses to raise prices in order to stay afloat.

Argentina’s currency woes may be forcing businesses to close but for some entrepreneurs today’s economic climate has merely turned them into price-jugglers in order to keep afloat.

“Every week we get in new stock, but unfortunately for two months now we have been engaging in what I call for fun the ‘re-labelling festival’ – changing prices,” said Fernando Hechtlinger, who recently opened two health food stores.

Some of his merchandise is imported from abroad, making it vulnerable to fluctuations in the peso’s value against the dollar, and to red tape.

The 46-year-old opened his first store at the end of last year near Mar del Plata and a second in the capital in July.

But this year alone, the country has suffered two currency crises that have seen the peso lose around 50 percent of its value against the dollar.

Prices have risen so quickly that Argentina’s 44-million strong population have lost a significant part of their purchasing-power.

Obligatory re-pricing

Each time the peso crashed, inflation shot up and is expected to reach 45 percent for 2018.

“It’s not good for the customer, either. You have to take the time to explain why” prices have risen, added Hechtlinger, a jack of all trades who previously worked as a screenwriter, creative editor and consultant.

“If I don’t re-price, I would have to close. That’s the reality because I’d lose my ability to re-stock.”

The peso has recovered a little over the last two weeks on the back of a US$56-billion bail-out from the International Monetary Fund at the end of September.

But that required drastic economic measures and skyhigh interest rates.

“Many things are happening that don’t help the economy, families or citizens. It’s clear that the current model doesn’t help anyone,” said Hechtlinger, who comes from a family of Jewish restaurateurs from Bahía Blanca, 600 kilometres (370 miles) south of Buenos Aires.

However, he said things never got so bad that people couldn’t afford to put food on the table.

Changing prices regularly is a risk but one that “works for us,” added Hechtlinger, who employs two people in each shop and next plans on opening a health distribution store.

As well as the endless red tape, Hechtlinger has to contend with Argentina’s taxes.

“You can’t avoid taxes. Here, in this country, in this context, unfortunately, your main partner is the state. One way or another, 50 percent [of your earnings] go to the state in taxes,” he said.

Economist Rodolfo Santangelo from Macroview says th Central Bank’s interest rates of over 60 percent aren’t viable over the long term and will result in “many small- and medium-sized businesses having lots of problems with capital... and finance.”

‘Difficult to predict’

Federico Veleno, 29, is surrounded by ukuleles in a shared working space in Buenos Aires, looking over his latest shipment from China.

Originally from Portugal, the four-stringed lute was adopted by Polynesians from Hawaii to Tahiti. But they’re now in fashion in Argentina.

It’s been six months since Veleno launched Bamboo, his musical instrument brand. The instruments may be made abroad but they are designed by Argentines.

“This first order of 800 were sold in two weeks,” Veleno said in an interview.

“When we put in the order, the merchandise takes three to four months to arrive. With the situation in the country it’s difficult to predict our sales.”

Two weeks ago a shipment arrived but the peso exchange rate against the US dollar had fallen – from 34 to the greenback to 42 – between the time deals were made with customers and the stock actually reached Argentine soil.

“What do we do? Do we sell it at the same price or increase?” he asks.

In the end Veleno opted to reduce his profit margin.

In the past, he and his brother tried to have the instruments made in Argentina, but that didn’t work.

But despite the problems, Veleno said Argentina remains a great place to learn how to stay in business.

“In Argentina, you don’t know if your pension will suffice, or if you’ll be laid off work due to a crisis and find yourself in the street.

“Argentines prefer to rely on themselves.”

by By Tupac Pointu AND Ivan Pisarenko

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