Economic Matters. That Smarts! The Weak Dollar Is Effecting Retailer Buying Behavior in Milan. Second City Style Fashion Blog

September 27, 2007 • Fashion


In the midst of the current Milan shows, one thing is painfully obvious…Europe is very expensive, especially if you’re American. And it’s effecting how retailers are ordering. Great news if you happen to be an American designer, not so much if you’re not. According to WWD, American retailers at the Milan shows are already smarting from the
anemic dollar — and that’s before they even finish placing their
orders. "I’ve never seen hotels so expensive, food so expensive," said
Stephen I. Sadove, chairman and chief executive officer of Saks Fifth
Avenue. "I took a less-than-five-minute cab ride from the [Hotel
Principe di Savoia] and it cost $15. It couldn’t have been half a mile." On Wednesday, the dollar closed at
$1.41 against the euro.

This isn’t ideal for Europeans either. The
strong euro is biting into U.S. retailers’ purchasing power and eroding
profit margins at many European fashion firms. Italian companies are becoming
increasingly concerned about the longevity of the dollar’s slide and
its damaging consequences for business.

"These exchange rates mean lost opportunities to expand and develop new markets," said Luigi Maramotti, chairman of MaxMara.

Like many companies, MaxMara is limiting its price increases for spring
2008 to a few percentage points, which will only partially compensate
for exchange rates. As a result, manufacturers’ margins can’t help but
suffer in the current climate, forcing them to be extremely careful
about cost management in areas such as communication, including
advertising, and retail expansion.

Ready-to-wear is likely to encounter greater 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 would devote to European
goods, but rather "affect the way we approach certain collections and
categories." American consumers may be willing to pay
"extra dollars" for $600 designer shoes or even pricier handbags, but
may not feel the same way about ready-to-wear.

Some Italian
fashion companies are taking note and are trying to limit
price increases as much as possible by relying on financial defense
mechanisms, mainly hedging.

John Hooks, commercial and marketing
director at Giorgio Armani, said, "it is our intent to try to absorb
currency variations, so we are not making any changes to retail prices
for this season’s merchandise. This does mean that there is some impact
on our margins, but we feel this is the appropriate approach in these

Jil Sander’s Armin
Mueller, the fashion house’s chief financial officer, said the company
increased prices last year anticipating the euro’s continued strength,
so it won’t need to make further price adjustments for now. "The
exchange rate is really making our lives very difficult," Mueller
admitted. "I did not expect the euro to become so strong, and the yen,
at 162 [to the euro], is really worrying," he said.

For now they are praying the devaluation stops. A more then 10% price
cut seems to be were the buck stops. They are too praying that the
dollar stabilizes, but there is additional concern about the state of
the U.S. economy given the
subprime mortgage crisis.

Read "That Costs How Much? Retailers and Vendors Hit by Weakened Dollar"

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