By and  on September 27, 2007

MILAN — Ouch!

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."

A strong euro is biting into U.S. retailers' purchasing power and eroding profit margins at many European fashion firms. Unfavorable exchange rates are hardly a new problem, but 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.

"This in an industry requiring significant investments," Maramotti said. "And our margins are also linked to the investments we need to make."

Over the last year, the dollar has shed more than 10 percent of its value against the mighty euro, and about the same amount against the British pound, severely curbing U.S. retailers' spending power. Buyers in Japan don't have it much better — over the last 12 months, the yen has lost about 8 percent versus the euro. On Wednesday, the dollar closed at $1.41 against the euro.

Executives at North American retailers said they would not cut spending on European collections, but would likely purchase with more scrutiny and caution. Most cited few instances of recent sticker shock on already-expensive European goods, but warned that 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."

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