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Managing risk: Music Magpie creates natural hedging
CLOSE to half of turnover at Entertainment Magpie, the company behind the innovative Music Magpie business, comes from overseas.
The company, which is backed by private equity firm LDC and employs 850 people, buys unwanted CDs, DVDs and video games from consumers via its musicmagpie.co.uk site. It buys 100,000 items a day from across the UK and Germany, and sells to more than 160 countries.
International growth remains a fundamental part of business development for the Macclesfield-based company, which aims to hit a turnover of £100m by the end of 2013.
Jon Eeles, chief financial officer of Entertainment Magpie, said: “We have a mass-appeal product set, which means we look specifically at the markets online and ecommerce take-up rates by category in order to determine the expected return for each geo-channel. Then this informs our plan of where and how to invest.”
As an online business, the company is able to invest in a new market at a relatively low cost.
Eeles said: “In certain new markets, we run reverse logistics back to the UK meaning we can leverage our existing core domestic infrastructure, lessening our overall risk and enabling us to thoroughly test new markets before investing more widely.”
One of the central financial risks in overseas markets is fluctuations in currency exchange rates. To best mitigate these risks, Entertainment Magpie works to create a natural hedge and match income and payment streams in the same currency.
Eeles said: “In the last few years, we have seen the euro fluctuate from a low of 1.10 to the current high of 1.27 against sterling. We have a distinct advantage over more traditional business models that are dealing with a fixed cost base in one currency and a fluctuating income stream in another.
“Our proprietary technology is constantly adjusting for material exchange rate movements and therefore is automatically margin protective. Our consumer proposition enables people to access products at extremely competitive prices and this has allowed us to continue to deliver growth in Europe despite the uncertainty in that territory.
“Whilst we remain cautious about the situation generally, our international base is much more wide-spread and we are not singularly reliant on Europe, with very strong growth being achieved in the US and Asia.”
