NEW YORK — The strength of the euro against the dollar is putting a strain on American accessories companies that source leather and other materials out of Europe.
The dollar has fallen nearly 10 percent against the euro in the last six months, trading at .82 euros to the dollar on Friday.
As the cost of imported leather rises due to the currency fluctuation, firms are struggling to maintain product quality without hiking prices. For the time being, the vast majority of them are lowering their margins and taking a grin-and-bear-it approach.
“We’ve seen the prices out of Italy rise over 30 percent in the last 12 months,” said Cole Haan chairman and chief executive officer Matthew Rubel. “It’s really made us think about how we can deliver superior product with price value to the consumer without changing really what we’re all about.”
Although Cole Haan uses suppliers in South America as well as in Europe, the company has had to raise prices about 5 percent to account for the increased cost of European goods.
Most firms, however, have not raised wholesale or retail prices significantly.
“It’s a decision we made in order to accommodate and really support our retailer,” said Lambertson Truex president and chief operating officer Michele Ateyeh, who added that the company is “taking the brunt” of this difficult time within the corporate office.
“We know [our wholesale clients] have particular requirements in terms of sales and gross margins, and we also made a conscious decision not to pass anything whatsoever on to our shopping clients,” Ateyeh said.
Companies understand that the only way to keep the flourishing accessories business going is by offering goods shoppers can afford, in the still-lackluster economy.
Ateyeh insisted that Lambertson Truex’s business is “going full steam ahead,” that prices have been stable, and that there was even strong response at last month’s accessories market to expensive materials like crocodile skin.
But how long will these smaller firms be able to sustain the hit, considering a luxury house like Louis Vuitton raised its retail prices by 6 percent in the U.S. last February in response to the soft dollar?“[We] can’t do it forever,” Ateyeh conceded. “We won’t make it up, but we’ll do well enough to sustain ourselves until things start to turn around.”
To save money, some firms are looking to more dollar-friendly markets like Asia and South America to source hardware. But for leather, they are by and large sticking with suppliers with which they’ve built relationships.
“Some of the things we source in Italy like embossed leathers you just can’t get anywhere else,” said Diane Wong, vice president of production and sourcing for Isabella Fiore.
Other executives agreed that it makes little sense to seek out new sources when their loyalty to suppliers gives them an edge in negotiations.
“[Our suppliers] are doing their best to work with us and give us prices that are the most reasonable and realistic for their operations, as well,” Wong said.
It’s also helping that, because firms are not raising prices, they are maintaining if not increasing their quantities with wholesale clients and, thus, with factories.
This may also have to do with the fact that quality is not waning, either.
“Now is not the time to cut quality,” said Lambertson Truex’s Ateyeh. “It’s not the time to cut back on packaging, it’s not the time to cut back on anything. It is a time to cut from other areas knowing we’re taking a hit somewhere else.”
While companies attest that the high price of leather has not influenced them to use it less, some have found that the consumer’s interest in certain fabrics, particularly logo prints, has worked to their advantage.
“The consumer has accepted our signature fabric as a higher-value product,” said Dooney & Bourke executive vice president Gary Dembart.
That perception, he added, has allowed the brand to offer fabric bags in larger shapes and sizes at prices lower than if they were made of leather.
“If this were an all-leather bag,” he said, “we’d find prices skyrocketing or the size of the bag shrinking.”
Other handbag makers have made stronger efforts to put the value on the exterior of the bag, where the customer will attach a higher perceived value to the goods. Where once firms used finer materials for lining, they’re now using more affordable linings to cut costs.Another tactic for saving money is shifting shipping strategies from air freight to ocean freight. Firms are examining their shipping on every level and aiming to have higher boat-to-air ratios within the coming months.
Based on last month’s accessories market, the efforts companies are making to keep prices stable have resonated with buyers.
“We’ve had a great market response so far and there has been no issue with our pricing,” said Wong, noting that prices of Isabelle Fiore had not increased, “which means we did the right thing.”
Regardless of how well firms seem to be surviving now, it doesn’t look like there’s a clear end in sight. Most of them plan to continue absorbing costs and hope not to reach the point where they have to place a significant price increase on their goods.
“We all remember when the dollar was king,” said Ateyeh. “So, hopefully, this will be cyclical like anything else.”
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