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How does "fair price" affect product sales in Venezuela?

How does "fair price" affect product sales in Venezuela?

Posted by Dubraswka Aguilar on November 19, 2014

The arrival of new merchandise to meet the holiday demand led to long lines in clothing and footwear shops in Venezuela. The difference with past years lies in the limitations that commercial channels have imposed to purchase these products due to regulations enacted by the national government.

In that regard, several Spanish companies such as Inditex (representing ZARA, Bershka and Pull & Bear brands) have girded their balance sheets in recent months in Venezuela to meet the Law of Fair Prices passed earlier this year and that prevents them, for example, from having a profit superior than 30 percent of the cost. The Law of Fair Prices was presented by the Venezuelan government in January in a bid to control inflation that exceeds 60 percent, end scarcity prohibiting higher profits by 30 percent and provide for penalties of up to 10 years in prison for hoarders, among other considerations.

This law was reinforced in early November with the launch of "Merry Christmas Plan" whereby the Executive ordered the stores to maintain "fair price" in order to protect the purchasing power of Venezuelans that receive these days Christmas compensation known as a "bonus".

The validity of three official exchange rates for the dollar in Venezuela, which sale monopolizes the state, make prices of products in bolivars be higher or lower depending on whether the importer has received the US currency at preferential rate 6.3 or floating 12 or 50 bolivars.

 There is also a parallel market where the dollar is sold over 100 bolivars for weeks, change that many traders receive dollars or not, set the price of their products in a speculative manner which encourages higher prices.

During a ceremony in late October the president of Venezuela, Nicolas Maduro announced to carry out this Christmas 27,000 tax plan would carry out a review of prices in stores across the country and was expected to be prepared that this body was to "150,000 men."

"In order to guarantee in all territory the supply, fair prices, protection of our people," Maduro said then.

The arrival of new material last week at Caracas to Inditex stores which received $ 12 bolivars this June-generated long lines of hundreds of people at their doors waiting for their turn to buy clothes at very competitive prices.

To prolong their existence, the company then decided to establish a number of requirements, such as the purchase of a maximum of five pieces per person per month or a maximum of a day in each of the stores customers.

The shortage in the case of certain brands of clothing are also experienced in some personal care products, detergent or milk, when available, generate lines that lead traders to limit quantities per person.

Five consecutive quarters of decline in sales reported by the principal trade association of the country (Consecomercio) due to problems with inventory replenishment in a timely manner by employers because of the delay in the settlement of foreign currency to import.

Maduro has blamed bad inflation data, over 60 percent year on year, and the scarcity to an "economic war" led by the opposition, private entrepreneurs and foreign governments seeking to oust him from office.

By contrast, for the opposition these figures are due, among other things, to bad economic policy.

In addition to Inditex, other Spanish companies in Venezuela also affected by the Law of Fair Prices in varying degrees, including Telefonica or insurer Mapfre.

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