Many businesses have successfully made the leap into eCommerce, spurred on by COVID’s impact and are looking at new opportunities to continue global growth.
One way we have observed our clients reaching new customers in Australia and abroad is by adding a wholesale arm to their business.
According to The Business Research Company, the global wholesale market size is expected to grow from US$42.12 trillion in 2021 to US$46.37 trillion in 2022 at a compound annual growth rate (CAGR) of 10.1%. The report also noted that Asia Pacific was the largest region in the wholesale market in 2021, followed by North America.
A key driver of this growth has been online retailers looking to expand outside direct-to-consumer sales via their website or marketplaces.
We are also seeing more and more wholesale marketplaces strengthening their offer. New wholesale marketplaces, such as Faire.com and TradeSquare, which allow international brands to wholesale into 450,000 retailers in the United States or in Australia respectively, are working closely with local suppliers and retailers to level the wholesale playing field.
Coupled with the International Trade Administration’s calculation that Australia’s eCommerce market is expected to grow 15.5% year on year, reaching US$32.3 billion by 2024, the global market really is an Australian online sellers’ oyster.
Anticipate risks to reap high rewards
While eCommerce expansion and diversification bring new cashflow opportunities, there are always risks involved when engaging in cross-border trade or adding a new revenue stream.
One prevailing risk for globally minded retailers in the current operating environment is currency volatility.
If you’re bringing revenue home from global wholesale marketplaces or receiving payments from B2B clients directly in foreign currency, changes to exchange rates could mean paying more for inventory than you anticipated, which then impacts your profit margins.
Fluctuating exchange rates comes with the territory of managing a global eCommerce business. But you have bigger things to tackle with your time than spending it watching the foreign exchange (FX) markets all day. Understanding the impacts of FX on your overall planned costs is the first step to setting up the right processes to secure competitive FX rates and minimise the sting of conversion fees.
So, thinking about diversifying into global wholesaling? Here’s our top three FX considerations.
- More revenue streams, less FX fees – The fees attached to each FX transaction may differ according to your provider and transfer size, which can add up over time. An easy way to help protect your business from volatility is through natural hedging, which occurs when overseas earnings and costs are held in the same currency. Creating a natural hedge means you can have more certainty over profit margins, since you aren’t converting revenue unnecessarily at an exchange rate you can’t control.
- Weigh up support from different FX partners – To be competitive in your new venture, it’s worth implementing a tailored FX solution to save your business time and money. Whether you’re turning to a bank or specialist FX provider, ask about service support levels, their transfer fees and the security protocols in place. Having this knowledge upfront could help you secure competitive FX rates and the right level of support for your business.
- Manage multiple currencies from a single platform – Juggling payments in numerous foreign currencies from overseas B2B clients can take focus away from business growth, if not managed correctly. Specialist plug and play solutions such as an OFX Global Currency Account (GCA) means your business can receive direct payments from your clients in foreign currency, without incurring receiving or automatic conversion fees. For example if you’re an Australian based seller operating in the US market, payments can be directly deposited into your GCA in USD, which you can then pay invoices in USD from the same account. By doing this you cut out the conversion fees back to your home currency, essentially creating that natural hedge.
Taking steps to educate yourself on how to simplify the potential FX complexity that can come with adding new revenue streams to your business, and working with a currency specialist, can give you the confidence to launch your new wholesale offer.
Lucy Allen is global head of eCommerce / online sellers at OFX.