Re-pricing: A business necessity in Argentina's economic crisis

Argentine start-up businessman Fernando Hechtlinger at his natural foods grocery store in Buenos Aires, on Oct 11, 2018.
Argentine start-up businessman Fernando Hechtlinger at his natural foods grocery store in Buenos Aires, on Oct 11, 2018.PHOTO: AFP

BUENOS AIRES (AFP) - Argentina's currency woes may be forcing many 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 US dollar, and to red tape.

The 46-year-old opened the first store at the end of last year near Mar del Plata and the second in a wealthy Buenos Aires neighbourhood in July.

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

Prices rise so quickly that Argentina's 44 million people have lost a significant part of their buying power.

Obligatory repricing

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

"It's not good for the customer either. You have to take the time to explain why" prices have risen, added Mr 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 restock."

The peso has recovered a little over the last two weeks on the back of a US$56 billion (S$77.4 billion) bailout from the International Monetary Fund at the end of September.

But that required drastic economic measures and sky-high 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 Mr Hechtlinger, who comes from a family of Jewish restaurateurs from Bahia Blanca, 600km to the south of the capital.

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 Mr Hechtlinger, who employs two people in each shop and next plans on opening a health distribution store.

As well as the endless red tape, Mr 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 per cent (of your earnings) go to the state in taxes," he said.

Economist Rodolfo Santangelo from Macroview says the country's interest rates of over 60 per cent 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 are now in fashion in Argentina.

It's been six months since Mr 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," Mr Veleno told AFP.

"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 dollar had fallen - from 34 to the greenback to 42 - between the time deals were made with customers and the stock actually reached Argentina.

"What do we do? Do we sell it at the same price or increase?" In the end Mr 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, Mr Veleno said his country 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."