Dollar’s Slide Helps Turkey, Hurts EU

European and Turkish mills set to show spring 2006 lines at New York trade shows are seeing opposite effects of the dollar's fall against the euro.

Buyers at next week’s textile shows will need to consider the effect of the weak dollar on their orders.

Buyers at next week’s textile shows will need to consider the effect of the weak dollar on their orders.

WWD Staff

NEW YORK — European and Turkish mills readying their spring 2006 collections for a slate of trade shows here this month are being affected in opposite ways by the fall of the dollar against the euro.

The Europeans have been hurt by a dollar that has lost almost 20 percent of its value during the last two years compared with the euro. This has made European textiles more expensive to U.S. buyers.

Turkish manufacturers, meanwhile, take the Asian approach to textiles and price their goods in dollars. Their strategy — bridging the gap between Europe and Asia by offering European styling and quality at Far Eastern prices — reflects their geopolitical position.

The currency dynamic isn’t expected to change anytime soon. On Monday, 1 euro was equivalent to about $1.31.

“The U.S. is running an enormous trade deficit and that’s going to keep downward pressure on the dollar,” said David Wyss, chief economist at Standard & Poor’s rating service. “Basically, Europe has to adjust to the fact that, if the U.S. eliminated its trade deficit, [the Europeans] would have to eliminate their trade surplus. It’s going to be a lot tougher for European manufacturing going forward.”

Part of the problem comes from the Chinese economic policy of pegging its currency, the yuan, to the dollar at a fixed rate.

“The whole burden of adjustment has been pushed onto the U.S.-Euro exchange rate,” said Wyss, who predicted that the dollar would lose another 10 percent of its value against the euro this year.

“The euro is killing the European mills,” said Charles Milgrom, a Toronto-based sales agent who represents European mills. “The trends are wonderful, the potential is huge, the customer reaction to the trends and paths that are being taken by the mills are very positive, but they’re not able to move because of the currency situation. It’s forcing people to buy and consider secondary resourcing in cases where they would normally run to Europe.”

Given the currency values, Milgrom said business for European mills has not been bad.

There are other challenges, though. In addition to Turkey, vendors are turning more to the Far East. The region, where China is the major player, has become even more of a threat since apparel and textile quotas were dropped among World Trade Organization members on Jan. 1.

This story first appeared in the January 11, 2005 issue of WWD.  Subscribe Today.

Milgrom noted that the least expensive textiles from Europe cost about 3 euros, or $3.92 at current exchange, a meter, while China sells fabrics for about one-third that price.

“A mill that would have shipped goods at 3.50 euros now has to chance some real competition from China,” he said. “There will be an effect for sure, but I’m not concerned that China will ever replace Europe as a resource [with] the capability to finish, show flexibility and follow the trends as closely.”

Douglas Seeley, a sales agent for European mills, said, “If you’re a European agent, the dollar is what you’re scared of more than anything else. The quota situation doesn’t really affect me so much because my fabrics are higher priced and my customer base is on a higher level.”

For some large retailers, such as Limited or Federated Department Stores, the prices in Europe might become prohibitive, said Seeley.

“All the European mills are very afraid for the biggest customers they’re going to be losing because of the exchange rate,” he said.

Some mills are developing less-expensive products, said Seeley, who added there is only so much that can be done while maintaining the novel aspects of many of the fabrics.

As European mills gird themselves for a prolonged currency crunch, Turkish mills are working to sharpen their offerings to keep their new customers.

For the 12 months ended in October, Turkey shipped $135.8 million worth of fabrics into the U.S., a 5.1 percent increase that gave it 2.4 percent of the U.S. fabric import market.

Over the same period, 12 European countries sold $1.13 billion worth of fabric to U.S. firms, a rise of 2.3 percent, giving the bloc 20.3 percent of the import market.

“We’re having our best year ever due to the fact that we have a full-time Italian designer for our mill that really increased our presence in the market,” said Okan Toklucu, vice president of textiles at Altinyildiz, a vertical mill and garment producer in Turkey that specializes in wool and spandex blends and tailored garments.

“Turkey is half in Asia and half in Europe, but we consider ourselves European,” said Toklucu. “It’s depending on the mills and the factories how they want to be perceived. We always try to upgrade our facility and basically become the benchmark in Turkey of quality goods.”

The mill’s specialties play into current trends, which lean toward dressier looks. Still, it is not just the fashions that are helping the firm.

“One of the reasons why business has increased is because of the euro [exchange with the dollar],” said Toklucu. “A lot of people are looking to us as an alternative to Italian wool providers.”

Those buyers, he estimated, find prices about 20 percent lower than European fabrics at Altinyildiz, which also can do some volume programs given its capacity to produce up to 10 million meters of fabric annually.

Turkey has other advantages, as well.

“There’s more production being done now in Eastern Europe and in the Middle East — for instance, Jordan,” said Bob Caplan, senior adviser to Turkish textile firm Bossa, a vertical producer of polyester and rayon blends, denim and woven fabric. “That positions us geographically in a very desirable area from a logistical standpoint, and everyone is concerned about logistics when it comes to sourcing products. A lot of production has moved away from Italy. There’s a middle ground before going to the Far East, and that would be Turkey.”

Despite this, Turkey still is working to firmly establish its image in the marketplace.

“The challenge is to continue to market Turkey as a resource for the apparel industry that other locations have had a foothold on for a long time,” said Caplan. “Overall, Turkey as a market is right now at a crossroads where they can really leap into a very strong position for building a very large base in supplying both fabrics and garments. We need to continue to make people aware of Turkey as a headquarters. I really think that Turkey could become what Italy has been in the developmental process of quality fabrics.”