Weak Dollar Stymies Luxe Purchasing Power

Discussion
Sep 28, 2007

By Tom Ryan

Buyers at American fashion boutiques aren’t having loads of fun buying European goods in the face of a strengthening euro.

Over the last year, the dollar has lost more than 10 percent of its value against the euro, and about the same amount against the British pound, severely curbing U.S. retailers’ spending power. On Thursday, the dollar closed at $1.42 against the euro.

Executives at North American retailers told Women’s Wear Daily they would not cut spending on European collections, but would likely purchase with more scrutiny. Most noted few instances of recent sticker shock on already-expensive European goods, but still felt ready-to-wear would be more susceptible to any price resistance from consumers than luxury handbags and shoes.

Jim Gold, president and CEO at Bergdorf Goodman, said the strong euro would not affect the “aggregate amount” the retailer spent on European goods, but rather “affect the way we approach certain collections and categories.”

“If product doesn’t stand out, and it’s expensive, that’s problematic,” he said.

Stephen Sadove, chairman and CEO of Saks Fifth Avenue, said, “There’s a limit in terms of what American consumers are willing to pay in certain categories.” While they may pay up for $600 designer shoes or even pricier handbags, “they may not feel the same way about ready-to-wear.”

Although cautious, many are determined to find creative ways to stock their floors.

“It takes much more discipline and experience to buy in this kind of environment,” Ron Frasch, Saks president and chief merchandising officer, told WWD. “The excitement level of the product has to be bigger, and it means the promotion and marketing around it has to be better.”

“At the luxury level, I think we have to be always looking for the gorgeous pieces out of all the collections,” said Caryn Lerner, president and CEO of Holt Renfrew & Co. Ltd. “When you start dumbing it down and let price dictate your taste level, then it’s a self-fulfilling prophecy.”

Judith Collinson, executive vice president of women’s merchandising at Barneys New York, believes the fashion industry should “proceed with some caution” and not let exchange rates “become an issue.” She asserts that Barneys likely would carry the same amount of European merchandise, and that the chain’s buying decision would not be based on country of origin or its currency.

“We think [about] what the designer’s done for that season,” she told WWD.

One silver lining is that the weak dollar is attracting hordes of European tourists to America to capitalize on their increased spending power with the euro. Mr. Sadove said European visitors have bumped up comp-store sales in Saks locations in “gateway cities.”

Discussion Questions: Should high-end retailers be spending less of their seasonal budgets on European goods in the face of a strengthening euro? What creative ways can these boutiques continue to excite customers yet protect themselves against the thin margins currently being offered by European goods?

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3 Comments on "Weak Dollar Stymies Luxe Purchasing Power"


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Len Lewis
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Len Lewis
14 years 7 months ago

What these retailers are talking about is better category management. I believe high-end retailers should remain high end in order to differentiate themselves from the pack.

Target buyers have a wonderful eye for trends. But they are never going to be Saks Fifth Avenue. But, I don’t think retailers and the fashion industry can dictate to consumers the way they did for decades. You can dictate fashion but not price. People have more choices and won’t be forced into buying a $2,000 handbag or a $3,000 suit just because they are told it’s an essential. There’s a price value relationship in fashion like there is everywhere else.

M. Jericho Banks PhD
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M. Jericho Banks PhD
14 years 7 months ago

When the value of the dollar falls against other currencies, my heart hurts for domestic retailers selling imported items while rejoicing for U.S. manufacturers. Simply put, as American goods become less expensive for foreign markets, we’ll make more stuff, sell more stuff, and employ more people. The devaluation of the dollar is not necessarily a bad thing.

Additionally, many goods imported into the U.S. are subsidized by their governments in order to gain share in the largest consumer market in the world (remember French wine in the 80s and 90s?). This is sometimes called “product dumping.” Some of these subsidies are open and legal, but many more are hidden and lied about (think about China in this context, as well as Japanese steel). A weaker dollar has the effect of forcing foreign governments to increase their subsidies, often exposing their unfair trade practices. Clouds often have silver linings.

Mark Lilien
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14 years 7 months ago

The dollar will probably remain weak due to the wars. This extreme weakness was last experienced during the Vietnam war. The Canadian dollar reached parity with the American dollar at that time, too. Some high-end retailers will more intensively seek out luxury American designer collections. Some high end European brands will increase Asian manufacturing, since the dollar has been stronger in Asia than Europe. The big issue: will the retailers allow their margins to be squeezed or will they pass along the price increases? My guess: the margins won’t be squeezed but the European-made unit sales will decline. What would save the situation? A strong stock market (might happen) and a strong housing market (unlikely).

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