By  on February 26, 2008

European shoppers visiting the U.S. are certainly getting a bang for their buck due to the euro's might compared with the dollar. But in the months ahead, they might have a tougher time finding European labels in specialty stores.

With the greenback hovering near an all-time low, several domestic retailers are cutting back on their European buys and in some cases, dropping labels entirely to try to stretch their dollars. On Monday the euro's exchange rate to the dollar of $1.4836 was not terribly far from last November's low of $1.4967 per euro, the weakest level since the European Union's currency made its debut in 1999.

Store owners are well aware the situation could get worse, given recent reports of sluggish manufacturing and signs of increasing inflation in the U.S. Financial analysts and traders are counting on Federal Reserve Board Chairman Benjamin Bernanke's semiannual economic outlook Wednesday for a stronger indication of where the euro is headed. The global market certainly favors the euro, according to Joseph Manimbo, a currency trader at Ruesch International. Should the 15-nation European Central Bank remain "hawkish" — and refrain from cutting interest rates as it did a couple of weeks ago — that would only help the euro, he said.

As a result, retailers are keeping a close eye on Wall Street to try to gauge where prices might be headed. While major department store chains can slightly offset the impact of the weakening dollar via currency hedging, smaller independents don't have such financial muscle.

Matthew Culmo, co-owner of By George, a women's specialty store in Austin, Tex., said, "Five months down the line who knows what the exchange rate will be?"

Of course, that also means that American designers who source European fabrics are seeing prices creep up. Some are trying to absorb a portion of those increased costs to be more competitive with their European counterparts and often use that sacrifice as a selling point with stores, said Butch Blum, who owns a store by the same name in Seattle. Prices for European collections are jumping 20 to 40 percent each season, whereas American ones that use European mills are climbing five to 10 percent, Blum's business partner and wife, Kay, said. "They are clearly trying to capture some of the lost European business or gain market share," he said.In addition, many European sales agents the Blums know lost all their profits last year by underestimating landing prices. "They thought they estimated on the high side but the dollar continued to tank," Kay said.

Christine Bailey, co-owner of Barbara Jean in Little Rock, Ark., said she has sliced her fall European buy in half, dropping Prada and Dolce & Gabbana. Along with the exchange rate, the minimums were too high to justify the store's sell-throughs and Dolce & Gabbana's fall collections used fabrics that are too heavy for the local climate, Bailey said. Canadian labels like Arthur Mendoza are benefiting from the leftover money, she said.

"We are cutting back tremendously in designer sportswear entirely because the prices are too high. Customers are just not buying that like they once did," Bailey said.

To try to keep their customers as shoppers, some stores are searching for more timeless pieces that won't look dated after a few seasons. Others are looking for more unusual styles that will justify a high-ticket purchase. Scott Malouf of Malouf's, which has stores in Lubbock, Tex., and Carbondale, Calif., said, "The caveat is it has got to be beautiful product — no more basic black pants at $600. It has to be the very best product with some novelty element."

Sara Albrecht, owner of Ultimo in Chicago, said she has been paying close attention to the descending dollar for the past three or four seasons and is spending a little less on European labels. But even in the instances when she is spending the same amount of dollars on a European collection, she is getting fewer units due to the exchange rate.

That said, Albrecht, who carries such labels as Gio Guerreri, Karl Lagerfeld, John Galliano and Piazza Sempione, said all her European vendors "have been great about understanding the issues and are very willing to work with me to make sure we have the best possible selling season. Some are sending things on approval, not enforcing minimums, taking returns and trying to maintain their prices by changing production or eating some of the margins."

But she knows full well that such generosity can only last so long. "I really don't see things getting better and that worries me. I know as a businessperson, they can't go on doing this," she said.As another way of curbing her European buy, Albrecht said she is less inclined to pick up jewelry and accessories in Europe — something she has done quite freely for years.

"I'm paying more attention to local designers and to designers in New York. I'm looking at things that I would never have probably looked at before," she said.

Culmo of By George has dropped two or three European labels and has cut back its European buy across the board. He declined to identify the ones that will fall by the wayside, but did say he would use some of the money he would have spent for foreign labels for his Marc Jacobs' buy.

"In the past two seasons, we've decided there is just no way we can increase European orders with the dollar where it is," he said.

While his plan is to hold off to see where things stand after the presidential election, he knows full well that the dollar could weaken even further before the new commander in chief is installed in the White House. For the time being, though, he is forging ahead with select European labels, Bottega Veneta and Lanvin, which are "selling incredibly" in his store. These two are excelling by offering customers top-notch designs, he said.

With 2,000 square feet devoted to designer labels and 4,000 square feet earmarked for contemporary, Culmo said, "Ready-to-wear designers with a more contemporary feel aren't doing so well. The customer doesn't see the value in those things. They would rather just buy contemporary."

Marcy Schwait, who owns the Marcy G boutique in Cherry Hill, N.J., with her husband, Saul, said she is definitely cutting back on European purchases, since prices have become so unaffordable. She declined to name the labels she dropped. Had she gone forward with certain labels, customers would have seen a $200 to $400 hike on the price of a two-piece outfit. The average purchase at Marcy G is between $2,000 and $2,500.

Marcy G has decreased its European buy by 30 percent and has dropped a few labels, but Schwait hopes to see a rebound. "Hopefully, the dollar will strengthen and we will go back to buying more European products."In Seattle, the Blums anticipated the weakening dollar and dropped Stella McCartney two years ago. Their fall order for Philosophy by Alberta Ferretti will be consistent with last fall, but there won't be as many units to sell. The narrower assortment is allowing them to build sales with strong labels like Malo and Moschino.

The Blums are spending much more time reviewing collections in order to be more selective. Blum's recent buying trip to Europe and New York lasted 17 days compared with his typical 10- to 12-day stay. And earlier this month, his wife's New York buying trip lasted about 11 days — twice the time she usually spends. "We're not just blindly buying something because it has a European label," Blum said.

Butch Blum, who has been in business for 34 years and recently expanded his store, said, "We're looking at far more product than we ever have. We're investing more time and energy to be sure it fits our store and suits our customer. If someone is spending $1,000 for something, they want to know it will be in next season. We just had a staff meeting where we talked about the importance of being able to look the customer in the eye and say, 'This will be in style in two or three seasons.'"

This season to try to cut costs the retailer is taking a closer look at accessories and underpinnings from domestic designers instead of European ones.

In New Orleans, Mimi Robinson, owner of Mimi, said the escalating euro spurred her to drop Moschino for fall. She said she could not justify the increase in price for such girlish styles.

"It's too 'jeune fille' for our customers. They'll pay Moschino prices and above but not for little flippy skirts and shirts with ruffled collars," Robinson said.

She is using some of those extra dollars to pick up Donna Karan and Douglas Hannant, and to order more from Michael Kors, an important resource in her store.

New York rtw designer Mikael Aghal, who launched his signature collection last year, said the euro's strength has allowed him to open a number of accounts. "Basically, they told us that the euro is too high. There is definitely more demand for U.S. product."Not everyone is sold on the idea of scaling back European designers as a way to offset the weak dollar. Scott Malouf of Malouf's said, "In theory that works, but when you look at the European designer merchandise, sales are really strong. There is still a price-value relationship to the customer. Also, since we deal with a lot of higher-end product, that customer seems to be less affected."

During a recent buying trip to New York, there was a lot of talk about the effect of the euro-dollar exchange rate on the U.S. apparel business, Malouf said.

"It seems as though the East Coast and West Coast are feeling the pinch especially in the East where there is the investment banking community connection," he said. "The heartland is still strong. We saw a 41 percent gain in European sales last year compared to 2006."

Given that, Malouf plans to increase his orders for Etro, Piazza Sempione, Eskandar, Loro Piana, Basler and some of the other labels he carries. "The business is performing very well at retail. As much business as we did last season with the European luxury market, I felt as though we left some business on the table," Malouf said.

load comments
blog comments powered by Disqus