Consumers Still Find
Despite Weak Dollar
Retailers, Foreign Producers
Accept Lower Profits
To Keep Market Share
Praying for Relief at Chanel
By Joan E. Rigdon and Valerie Reitman
The Wall Street Journal
(Copyright (c) 1992, Dow Jones & Co., Inc.)
Max Imgruth, chief executive of Charles Jourdan USA, recently huddled
with his financial advisers in Paris. With the dollar falling, the unit of
Paris-based Charles Jourdan International was under pressure to pass
through to U.S. customers double-digit price rises on its $95 to $395
But Mr. Imgruth surprised his colleagues. "That would be like building up
20 years' worth of business and then wiping it out," he told them. "The
American consumer is not willing to swallow those price increases." One
customer, Joyce Johnson, a Pittsburgh homemaker, confirms his fears. "I
might buy one pair, but I wouldn't buy three," she says.
Mr. Imgruth's solution: Hang on to his U.S. customers by squeezing his
profit margins -- and pray for a stronger dollar by spring. Until then,
"we're taking a tremendous hit. We're living on air and inspiration," he
He's not the only one. As the dollar flirts with new lows against many
European countries and the Japanese yen, more dollars are needed to
buy goods from those countries, unless the foreign exporters are willing to
settle for less of their own money in payment. So, the foreign
manufacturers, and U.S. retailers as well, are fretting over how to price
next season's goods without scaring off cash-strapped U.S. consumers.
Even Arie L. Kopelman, president of Chanel USA's operations, who did
pass through price increases to his customers, says he would "be a liar if I
said I didn't put my little hands together every day and pray there will be
no more erosion" in the value of the dollar.
The currency swings are taking place in a unique economic environment.
The last time the dollar was this weak, in the late 1970s, prices of foreign
goods could be raised more easily because prices on American products
were climbing, too. Moreover, European companies weren't so
dependent on the U.S. market and thus not so worried about losing
market share to rivals in the U.S.
But now, a decade later, foreign companies have expanded their
beachheads into major customer bases that drive their factories. Despite
the weak dollar and the U.S. economy's tailspin, they're loath to retreat.
"There's tremendous stagnation or worse across all of Europe and Japan,
and there's tremendous pressure to export, export, export to keep their
factories going," says Laurence Meyer, professor of economic forecasting
at Washington University's Olin School of Business. "They're saying,
`Look, we have this incredible investment in our U.S. distribution chain.
We don't want to price ourselves out of market, particularly if it's going to
For now, most businesses are trying to meet the customer at least halfway
by cutting their own prices to partly compensate for the dollar's slide. But
they say they can't hold out for long, and some have already raised their
prices. If the dollar hasn't rebounded by year end, consumers can expect
price increases on most European and Japanese imports next yearand
fewer of them on the shelves. Instead, they'll find more domestic goods
and imports from developing countries whose currencies are pegged to
While the weak dollar is bad news for lovers of Brie, brut and BMWs, it
doesn't foreshadow stepped-up inflation. Today's weak dollar reflects
other countries' high interest rates more than fundamental weaknesses in
the U.S. economy, as in the 1970s. On the basis of an index that's
weighted for trade volumes with various countries, the dollar is down only
1.1% from last December against other currencies, and it has even
reached a six-year high against the currency of the nation's largest trading
partner, Canada. Moreover, the growth in the U.S. money supply,
ultimately the crucial influence over inflation, has been moderate.
The weak dollar may even spur the U.S. economy, since it makes
domestic manufacturers' goods cheaper overseas and makes it easier for
them to regain share at home. Indeed, the tables have turned since the
early 1980s, when the strong dollar nearly froze American exporters out
of Europe and Japan.
But that's slight solace to anyone selling imported goods in the U.S. In
Europe last month, in what he calls the most frenzied buying trip of his life,
Evan Cole, a U.S. importer of home furnishings, encountered chaos.
When he began his trip in Paris, he saw an antique armoire for $1,000.
By the time he returned three weeks later on his way home, the surge in
the French franc against the dollar had raised the price in dollars to
With the currency so volatile, his suppliers were paralyzed, waiting and
hoping for the markets to stabilize. "The whole world is stopping," says
Mr. Cole, who is president of ABC Carpet & Home, a New York
furniture retailer with $100 million in annual sales. "They have no idea
what to do. The supplier has no control over the currency, but the
currency valuations have total control over their destiny."
Currently, U.S. consumers are shielded from the turmoil in world
currencies. But a stroll down Chicago's "Magnificent Mile" shopping
district last weekend showed how frugality has replaced spending as the
prevailing ethos. While shoppers browsed through Henri Bendel and
Barney's, they showed their true colors in their shopping bags: Gap and
Crate & Barrel.
Even designer aficionados are holding back. Terri Carroll, an Orlando,
Fla., boat dealer with a penchant for Chanel handbags, said she'll buy
them on sale for $200 to $300 but won't fork over the $600 to $700 for
one at full price. Barbara Locke, a friend with whom she was visiting
Chicago, recently bought three Liz Claiborne bags but deems the coveted
Chanel purse "just not practical."
Others emerge from tony boutiques with only small-ticket items. A
Bankers Trust investment banker, who says she spends too much money
on clothes, makes a routine tour of Barney's and Henri Bendel and
surfaces with a $12 make-up brush and $42 jar of face cream (a
twice-a-year luxury). Once a fan of Prada purses from Milan, she now
finds them too expensive. "I was just looking at one -- $1,200! That's
outrageous!" she says.
For retailers, there's no sure-fire solution. Stores such as Dayton Hudson
Corp.'s Marshall Field's haven't had to raise prices yet because they
locked in currency rates months ago when ordering the goods now on the
Others, which didn't hedge, are writing off the cost as the price of winning
market share here. "We want to sell," says Eugenia Ulasewicz, president
of Galeries Lafayette's only U.S. department store, which opened in
Manhattan last year. "We are competing against New York stores that
buy most of their merchandise from America, and we have to be
But smaller shopkeepers don't have the buying clout to negotiate good
deals from suppliers and bankers -- or the deep pockets to keep a lid on
prices. "Our prices are extremely high now," says Jody Clancy, manager
of Scandinavian Design of Pennsylvania in Philadelphia. She's so
vulnerable to currency swings that she can't quote prices on special
orders from Denmark until the end of the day, when the final exchange
rates are in.
Until the markets stabilize, many small businesses are turning to
middlemen who stockpiled imports earlier this year when the dollar was
stronger. But even that doesn't guarantee lower prices; it's a bit like
buying canned goods in a hurricane. Ms. Clancy says she has higher costs
even though she now buys everything but special orders from furniture
wholesalers in New York.
Wine merchants say they have been able to keep their prices down
because they stockpiled goods last summer in anticipation of a separate
sticker shock: an agricultural trade war with the European Community in
which the U.S. threatened 100% tariffs on liquor and farm products.
Those who can supplant their Japanese and European imports with goods
from the U.S. or developing countries are doing so. "If we're buying from
Europe and it can be made in India, we're switching," says Mr. Cole, the
Manhattan furniture retailer. (He figures at this rate, half of his European
suppliers will be out of business in three years.)
At Astor Wine & Spirits of New York, Californian, Australian and
Chilean wines are invading shelf space once reserved for European
vintages. And for the first time, Feathers, a Pittsburgh purveyor of linens
and down comforters, has added a line of less-expensive sheets from
Springs Industries Inc. of South Carolina, after its German supplier raised
Of course, many goods bearing Japanese and European labels won't be
affected by the currency swings because they're already made in the U.S.
or developing countries. Most apparel makers long ago moved
production from Europe and Japan to Hong Kong, China, Malaysia and
the Philippines. Swedish retailer Ikea taps U.S. suppliers for about half of
the household furnishings it sells in the U.S., up from 10% in 1989. "We
have a long-term policy of buying in the market that's most
cost-effective," a spokesman says.
Without knowing which way the dollar will go next, many American
importers are faced with a big gamble that could make or break their
business. If they lock in currency rates now, the dollar may rebound, and
they would be stuck for the difference. But if they don't hedge, they risk
losing even more of their buying power if the dollar depreciates further.
The uncertainty has crippled retailers' ability to plan ahead. Robert
Kacher, a French-wine importer in Washington, D.C., has thrown up his
hands. Although he thinks he could sell another 5,000 to 6,000 cases this
year, he has stopped taking orders because he doesn't want to gamble on
the currency market. A wrong guess can ruin a business, a lesson he
learned the hard way in the mid-1980s when he failed to hedge and lost
$200,000 in two years. He calls that "the world's most expensive MBA."
These days, he locks in exchange rates ahead of time, when the dollar
appears to be hitting a peak. Last spring, he shrewdly bought $1 million
worth of French francs at a rate of 5.5 per U.S. dollar to cover his fall
orders. If he hadn't, that same $1 million order would have cost about
$127,000 more, now that each $1 fetches only 4.8 francs. "You don't
buy any wine till you have the francs to cover it," he says.
"If the dollar gets any worse, we'll just put the key in the door."
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