THE WEAK DOLLAR: MIXED EFFECTS

Byline: Katherine Weisman, Paris, with contributions from Sara Gay Forden, Milan

PARIS--The weak dollar is a hot topic in Europe, especially among manufacturers who export to the U.S. But apparel makers here agree on one thing: The dollar's rise and fall has not yet sparked major price shifts at U.S. stores.
While fluctuations in exchange rates certainly make an export business more challenging, indirect effects are often more significant.
"All the currencies of Southeast Asia follow the course of the dollar. It's here where we can feel the undesirable effects of the dollar's behavior," explained Francesco Marchi, the senior economist of Comitextil, the Brussels, Belgium-based federation of European community textile and apparel manufacturers.
Marchi explained that when the dollar falls, the currencies of Southeast Asian markets drop, which results in a surge in their exports and increased competition for European-made goods.
In France, fashion and accessories companies have been griping for the past few years about the dollar's exchange rate, which has ranged from about 5.6 francs to the dollar, to 5.1 right before the recent U.S. elections, to a current 5.3. The dollar's decline, coupled with customs duties and transportation costs, is contributing to gradually higher prices for French goods in U.S. stores.
Even so, top European fashion firms say the dollar's fluctuation has not adversely affected their businesses.
"The lira is the problem, not the dollar," said Ralph Toledano, president of Karl Lagerfeld, pointing to the competition French fashion faces from Italy since the lira's devaluation two years ago. "We're vulnerable, like anyone else," said Simon Burstein, Sonia Rykiel president. "We sell in French francs, so a lower dollar makes our goods more expensive. " Burstein explained that his major American clients buy currency futures and have a cushion against the dollar's current weakness. "But we have also been attentive to our prices, and have maintained them over the past few years," he added.
Like other executives here, Burstein blamed the French social security system for impeding French exports. "Our system makes wage packages here much more expensive than in other countries," he observed. In Germany, ready-to-wear makers are wary of the dollar's recent downward spiral, but no one's panicking. German apparel companies have grown accustomed to currency fluctuations, and most work with rates set in advance, and at fairly conservative levels.
"By my way of thinking, the German mark is slightly overvalued in relation to the dollar. But, for the moment, we can live with it," commented Klaus Steilmann, the country's largest apparel manufacturer.
Steilmann does about $25 million in sales in the U.S. Steilmann said the U.S. customer has been responsive to its pricing, and the company has no plans to change prices in response to the dollar's slide. "Changes of 3 to 4 percent are not so important to the consumer," he noted.
Jil Sander's business in the U.S., currently about $9.7 million (15 million marks) in sales, has not been greatly affected by the dollar. "We sell in marks and our exchange rate is set, for next season, as well. Our calculations were considerably over 1.50, but the situation is not so serious," said Gudrun Krahl, marketing manager of Jil Sander. "With a [current] rate of about 1.55, we can manage quite well."
Italian firms have suffered relatively little from the weak dollar after the lira was devalued in September 1992, which helped make Italian goods more competitive in foreign markets. The dollar's softness has taken some bite out of rising costs of materials, particularly cashmere and other fine wools, which have risen as much as 100 percent. Looking ahead, Italian fashion houses expect the dollar to fluctuate between 1,500 and 1,600 lire in the short-to-medium-term, levels that still make high-quality Italian apparel attractive in the U.S. market.
If anything, the exchange rate is likely to be affected by weakness in the lira due to uncertainty about Italy's political situation.
Aurelio Giorgini, a senior manager at GFT SpA, said that despite the dollar's relative depreciation over recent months, it hasn't cut into exports of GFT's designer men's and women's wear to the U.S. "Although we obviously would prefer to see the dollar at 1,700 lire rather than 1,550 lire, it is still working to our advantage at these levels," Giorgini said. He also pointed to the upturn in U.S. consumption that has also helped GFT's U.S. sales.
Pietro Thiella, director of apparel at Marzotto SpA, said he considers the dollar undervalued, but noted that as long as it remains around 1,550 lire, "we can still operate effectively." If it slips below 1,500 lire, it's time to worry, Thiella said.
British apparel makers haven't been hit as hard as some of their European counterparts by the dollar's drop. The exchange rate of the pound and dollar, like those of the lira and dollar, has been relatively stable for the last two years, since the pound was devalued by about 15 percent when it withdrew from the European Exchange Rate Mechanism in 1992. The dollar traded as high as $1.60 to the pound recently, but dropped to about $1.58 following the Republican victories in the recent U.S. elections.
U.K. designers said they set their dollar prices for spring-summer 1995 well before the most recent decline, and they won't raise their prices in the short term.
"We always sell in dollars landed," said Cindy White, sales director of Rifat Ozbek, who is backed by Aeffe of Italy. Aeffe buys dollars ahead each season, and thus will be cushioned against the most recent drop.

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