Currency Hedging?

Photo Credit: Tracy Olsen

Commenting on our last post, Matt raised an excellent issue about currency hedging which I think warrants it's own post. Neither Mike, Jodie nor myself have worked in finance so I'd love to hear people's thoughts on this.

Currency hedging for us would essentially mean locking in a Hong Kong to Australian dollar exchange rate. We pay for our shoes in Hong Kong dollars but receive payment from our customers in Australia dollars. So if the Hong Kong dollar rises in value against the Australian dollar, our costs go up but our revenue doesn't = bad times. On the flip side, if we hedge, we would lose any benefit if the Hong Kong dollar falls in value against the Australian dollar. Hedging helps mitigate risk.

Here are my thoughts on hedging:

1. In the short term we can't really hedge as we have no idea what our revenue is going to be like and therefore how much we should hedge. Hopefully this is only temporary and we have a better idea in a few months time following our launch.

2. If the Australian dollar moves in value against other currencies, our competitors will be faced with the same issues as us as very few shoes are made in Australia. If the Australian dollar rises in value we, and our competitors all benefit from higher margins. However this is likely to attract new entrants to the market pushing down prices, so the net effect after a period of time is neutral. If the Australian dollar falls in value against all currencies, we and our competitors face decreasing margins putting pressure on us all to raise prices. If everyone raises their prices then, assuming demand doesn't slacken off too much at the higher prices, the net effect after a period of time is neutral. There are a ton of assumptions in here, including that our competitors don't hedge, which I think is likely given the shoe retailing market is made up of many small players.

3. We don't know which currencies our competitors buy their shoes in and the theory in point 2 above doesn't hold if most of our competitors buy in Chinese yuan or US dollars. If they do then we're at risk if the Hong Kong dollar appreciates in value against the Australian dollar, but the Chinese yuan and US dollar don't.

4. Hedging costs money. I'm guessing in the order of a couple of percent of the value hedged?

Conclusion - Given these points I think we need to:
1. Launch so we get an understanding of what our sales are going to be.
2. Find out what currency our competitors buy their shoes in.
3. Consider some hedging as the market movements described in point 2 above take time to happen. Hedging might help us in the short term until the market adjusts.

Thanks for bringing this up and making us think this through Matt! I'd love to hear yours and anyone else's thoughts on hedging as it's a long way from our area of expertise. (Feel free to comment below).

Negotiating in Hong Kong and China (Part 2)

Following on from our first post about negotiating in Hong Kong and China, we thought we'd do an update post.

One of the first things we found when speaking to our shoe supplier was that they weren't keen to talk about price. We raised the issue at one of our early meetings and their response was, 'Let's learn to work with each other first and build the relationship, then we can talk about price.' Obviously that's a very different approach to how negotiations would take place in Australia and thanks to Dan and Julian's comments in our first post we were prepared for something like this.

Initially we thought that not negotiating price immediately puts us in a risky situation, because if we build our shoe designer using our suppliers designs, and set up all our systems to work them, then we're in a more difficult negotiating position when it comes to price. However thinking this through some more we realised that the relationship is probably more important to us than price anyway. The key skill Mike, Jodie and I lack as a team is shoe making experience, so we need to build a strong relationship with our supplier and learn all we can about this art from them. On a personal level this approach also suits us, we'd much rather get to know our suppliers really well and have a strong, friendly relatinship with them, than be constantly bickering about price. So while the jury is still out, the Hong Kong / Chinese approach looks like it will work for us nicely. :)

We're also in the fortunate position that the Hong Kong $ to Australian $ exchange rate has moved quite strongly in our favour from when we first started the project, so even at the highest prices our supplier could charge us we could still operate a successful business. And if things go horribly wrong when it comes to price we've kept up relationships with some very good alternate suppliers who we could work with.

So whenever we meet up with our supplier we bring gifts from Australia (avoiding black label whisky and green hats - thanks Jared!) and we've got the very pleasurable task of spending a lot of time socialising with them, eating lots of local Chinese cuisine and consuming the local beverages. Mike's in Guangzhou at the moment hard at work on this important task. ;)

What do you think, have we taken the right approach? Anything we should be doing differently?

Who dat brand?

Michael - When we started this blog we weren't quite sure what we would be focusing on business wise. Shoes of Prey has quickly become our main focus and Jodie is involved in that as much as Mike and I. So we're adding Jodie as an author on this blog and she's going to be writing about the areas of the business she's working on.

Jodie - There are many elements to work on when branding a business, and particularly when you're developing a brand identity from scratch. Although I don't purport to be an expert, I find that in a lot of ways it is like imagining a whole new person. For me this comes with inherent issues of needing to separate your own identity from how the brand should be perceived by the world. This also makes the exercise feel very subjective, which you have got to be careful to sense-check.

In our case, Shoes of Prey is currently a work in progress. So far, We have cracked an insight that really works for us, that is that that Women behave as predators of couture.

Starting here, this kind of statement feels quite high-end, because of the category (fashion) and that word we've used - couture. However, I think that functionally, no other word could work in its place - except perhaps shoes, though this would stop us from talking about the bigger picture, which is shoes as fashion, rather than things to walk around in.

Within this high-end feel, the trick for us is that we aren't a luxury brand, and we don't want to pretend to be.

We are a creative, reliable, young brand that can help you to realise yourself as a shoe designer. The quality that we offer is high-end, but the brand itself can't afford any snobbery, because Michael, Mike and I aren't offering to personally stitch you some shoes. :)

As we work on our brand, we will need to continually be sure that we are being true to the creative side of our brand, and keeping up our quality message without ever tarnishing the youthful aspect, which is potentially the most exciting part of this brand. How would you do this? Do you think that moving away from high-end in this category is a mistake? Who are your favourite brands and why?

Shoe Photography

The shoes we can make for our customers are beautiful and it's important for us to show this on our website. I was talking to a friend who's into photography, Christine Knight and she suggested I try making a light box following these instructions. A light box lets you take photos in white light and if you set the light box up right you can create an 'infinity effect' with a pure white background.

So a few weeks ago I visited the local art store and bought three large pieces of white foam board, an A1 piece of white paper and some white tape, all for $40. I already had a good knife and some white lights at home. It took about an hour to cut the foam board and paper into the appropriate size for a pair of shoes and tape it all together. It was kind of cool to build something with my hands, not a lot of opportunity to do that working for a search engine!

Next step was a good photographer, director and camera. Another friend, Cynthia Rouse offered to come around and take some shots of our shoes. She and Jodie worked out some cool shoe layouts and they got photographing:

Then another friend, Juliana Bacmaga retouched the photos. Here are the final shots:

Thanks to everyone who helped!

We're planning have a light box and camera set up at the shoe workshop in Guangzhou so we can photograph every shoe we make. When customers are designing shoes in the shoe designer we'll be able to shoe them photographs of shoes similar to what they've designed.

Do you like the photos?

Blogging - we're back!

The competition that we'd entered Shoes of Prey into was TechCrunch50 and unfortunately we didn't make it into the top 50. It was fun to go through the process of applying and interviewing with TechCrunch, we got to the last stage before the top 50 so that was a good experience. It looks like it will be a great event and we're looking forward to reading about all the company's that made it!

Not being in the TechCrunch50 means we can get back to blogging, so we've reposted all the old Shoes of Prey posts and we'll be back to posting 2-3 times a week. As always, your comments are very much appreciated. They have been a great source of ideas and feedback for us so we'd love you to keep them coming!

Photo Credit