LONDON — While it may be the best of times for British shoppers on spending sprees in the U.S., it may well be the worst of times for British designers trying to sell their wares abroad.

This story first appeared in the December 27, 2007 issue of WWD. Subscribe Today.

A strong pound and euro, coupled with a weak dollar, are denting designers’ hopes for expansion — not to mention their margins — in the American market.

Some designers and manufacturers have already fixed their prices at $2 to the pound, and $1.46 to the euro, in order to reassure U.S. clients and shield them from further rises in those currencies. They’re even willing to sacrifice their profit margins if it means maintaining relationships with U.S. clients.

“The currency situation will most certainly affect our margins in 2008,” said Franco Penè, chairman of Gibo Co. SpA, which manufactures lines for European and American designers including Paul Smith and Hussein Chalayan.

“I think everyone is going to pay a lot of attention to their price lists for fall 2008. They’re going to make sure those U.S. landed prices are as attractive as possible,” he said, declining to be more specific.

Penè manufactures Chalayan’s and Smith’s clothing in Italy, and his cost base is therefore in euros. He sells to the American market in dollars, and has already fixed his internal exchange rate at $1.46 to the euro. Most recently, the dollar was trading at about $1.44 to the euro, but has been as high as $1.48.

He said he’s also sensing a general malaise among consumers in the American market.

“It’s not only the exchange rate. It’s the fear that the dollar will get weaker, and that the economy will continue to suffer,” he said. “And believe me, when it comes to consumers, there is nothing worse than fear — it has much more of an impact than hard, negative facts.”

For the first time, Matthew Williamson will be pricing its fall collection in dollars for U.S. clients. The company has locked in an exchange rate of $2 to the pound. The exchange rate was about $1.97 earlier this week before the holiday.

“There is a lot of scare-mongering going on about the dollar right now, and we want to give comfort to our U.S. buyers,” said Joseph Velosa, co-founder of the Williamson business. “We want to let them know we’ll shoulder the currency risk come what may.”

Velosa added that after this season, the company will review its dollar pricing policy.

Christopher Kane, a young designer who’s been winning plaudits for his London collections and who consults for Donatella Versace, is not willing to take the same risks. He’ll continue to price in pounds for fall, but is well aware of the risks.

“This season [spring], the dollar is definitely going to hold people back from buying,” said Kane. “There were so many key pieces in the show, and those pieces may make it to the magazines, but the question is who can afford to buy them?”

Kane currently manufactures in the U.K. — where production costs are higher than in continental Europe — so he can keep a close eye on quality and deliveries.

“Right now we’re such a young company, and we can’t afford to take any risks — which is why we’re still producing in the U.K. But the time will come — over the next few seasons — where we’ll have to find outside manufacturing,” he said.

Kane said that despite the current exchange rate, he continues to meet with American department stores including Barneys New York, and said he’d even be willing at this stage to offer key pieces on consignment. “We can’t really cut our prices. We have staff to pay, and we have to make a profit. And, yes, that sort of makes us feel guilty,” he said.

Julie Gilhart, senior vice-president and fashion director at Barneys, said while the store carries the more-established London designers, including Kane, Gareth Pugh, Duro Olowu and Erdem, it’s the younger, emerging ones she’s concerned about. “We’re in a period now where there is really good, interesting design talent coming out of London. But the new, emerging designers have become prohibitively expensive because of the exchange rates. These designers are often as expensive as the more established ones,” she said.

“It’s a perplexing problem: On one hand, we want to support and nurture young talent, and on the other, pricing is so out of whack right now,” she added.

The currency exchange is affecting clothing and accessories companies alike. Mulberry, which is predominantly an accessories brand, operates much like Gibo and Matthew Williamson in that it locks in exchange rates for the year and sells to the U.S. in dollars.

Lisa Montague, Mulberry’s chief operating officer, said she’s been operating with an internal rate of $2 to the pound for a long time, and plans to hold onto that rate for as long as she can, despite the currency fluctuations.

“We just hope we’ll be able to reconcile our margins at the end of the year — and see if we can still stay in business,” she joked. “But we are a company in growth mode, and still confident at the moment.”