Weak Dollar Packs a Strong Punch

Catalogers that rely on imports from Western Europe are hoping that what goes down must come up. And what they’re waiting to come up is the value of the U.S. dollar against the euro. Between January 2003 and January 2004, the dollar tumbled 15% against the euro; it has lost nearly one-third of its value since the middle of 2001.

For marketers who import goods from the so-called euro zone — as well as from the U.K., whose pound has gain 14% in value against the dollar since January 2003 — the result is a 20%-30% increase in the cost of goods. A figurine that might have cost a cataloger $50 in 2002, for instance, would now cost at least $60.

While they wait for the dollar to rise in value, catalogers are reassessing their sourcing options and trying to determine how much of the additional costs, if any, they can pass on to consumers.

Swallowing the costs

TechniTool, a Worcester, PA-based cataloger of manufacturing tools, had already had to increase prices this year. The company imports 5%-8% of its goods — “specialty application products” from Switzerland, Germany, and Italy, says president Paul Weiss. “If our customers need the special tool that fits their need and quality, they will have to pay the increased price.”

But Pickering & Simmons, the Edison, NJ-based parent of the Old Durham Road home accessories catalog and the Norfolk Lavender toiletries title, will swallow “a good bit” of the cost increases, “because we need to maintain our relationship with our customers,” says partner Craig Weidenheimer.

Luckily, some of the company’s vendors realize that they need to maintain their relationships with Pickering & Simmons and are in turn absorbing some of the difference as well, giving the cataloger favorable exchange rates. “Right now,” Weidenheimer said in early April, “the dollar to the [British] pound is around $1.80, so some of our vendors tell us we can pay on a $1.70 rate.” Pickering & Simmons imports “a good percentage” of its SKUs, primarily from the United Kingdom.

The vendors that are willing to strike deals with Pickering & Simmons “want to see the business go on and realize it’s a hardship for us,” Weidenheimer says. And getting such breaks from his vendors, Weidenheimer says, “causes us to make sure those vendors’ products are in our catalogs. They have an interest to make sure the business isn’t curtailed with us or limited. That’s because we all see this as a temporary problem.”

Everybody hurts

In an April economic report, New York-based commodities brokerage Refco Group wrote that the euro’s rise “hurt external demand for European goods,” putting a “strong dent” in corporate profits of European manufacturers. Because the rising cost of European goods to Americans is hurting overseas vendors as well as stateside marketers, “suppliers are willing to offer promotional discounts to increase their business worldwide,” says Sybil Strum, president of Elmsford, NY-based cataloger The Wine Enthusiast.

Despite discounts, though, The Wine Enthusiast has seen its margins suffer. The cataloger of wine-related merchandise has had to “absorb a lot of the increases, because it’s very difficult for us to raise our prices,” Strum says, for fear of alienating its customers.

Another concession of European vendors is that they will accept smaller orders, says Terri Ruda, senior merchant with Norcross, GA-based home accessories cataloger TouchStone. “Because so many European factories are losing business,” she explains, “they’re willing to sell direct to mail order catalogers at much lower minimums. Whereas we used to have a 300- to 400-piece minimum, some vendors are willing to go to 100- to 200-piece minimums.”

At the same time, Ruda says, some of the European merchandise suppliers are coming out with fewer new products “because they’re working on tighter margins now. So they can’t have as broad a range of products as they normally offer — especially the tabletop vendors.”

Conversely, some vendors are trying to entice U.S. buyers by offering more new products. Sally Fisher, an account executive with Ridgefield Park, NJ-based Crystal Clear Industries, which manufactures crystal and glassware in Europe and Asia, says that the company’s catalog clients “are looking for unique and hard-to-find items instead of price-driven items.”

As a result, Fisher says, Crystal Clear is “introducing more new products than ever before.” The company’s catalog customers include TouchStone, Bloomingdale’s by Mail, Horchow, Neiman Marcus, Gump’s by Mail, and Barrons.

Nonetheless, a number of mailers are finding that they can no longer afford to offer high-end expensive European products. “We’ve had to stay away from the higher price points in the catalog,” says Terri Alpert, founder/CEO of North Branford, CT-based Uno Alla Volta. A catalog of handcrafted jewelry, tabletop items, and decorative glass, Uno Alla Volta imports 30%-40% of its merchandise from Italy, Ireland, and England.

“An item that normally we would sell in the catalog for about $200,” Alpert says, “we’d now have to charge $300-$350 for. What kind of demand are we going to get for that? The demand for that product just isn’t going be there at that kind of price increase, so as a result we’ve really had to be careful with these European products.”

As for some of the higher-margin products, “we could eat some of the costs,” Alpert says, but should the increases continue, “those products will no longer be in our catalogs.”

The decline of the dollar is costing catalogers time as well as money. Just as paper buyers have learned to lock in prices with the mills during times of market fluctuations, some catalogers are making their commitments to European vendors earlier than usual to hedge against further declines in the value of the dollar.

“As factories are changing their prices daily and vendors have to lock in prices, we have to make our commitments six months ahead of time, compared to the 90-day lead times of the past,” TouchStone’s Ruda notes. “So you have to plan much earlier now, especially on tabletop items.”

Looking to Asia

Because of the drawbacks to buying from European vendors, many catalogers are looking farther east, to Asia, for an increasing portion of their product.

Wine Enthusiast, for one, is having Asian manufacturers produce some of its “less complicated products,” such as corkscrews, coolers, bottle coasters, and wine racks — none of which requires the sophisticated techniques used by European vendors. By using Asian vendors, Wine Enthusiast will be able to keep its sourcing costs in line with what they were before the dollar fell.

Currently 25%-30% of Wine Enthusiast’s products are from Europe. But Strum expects that to decline, though she hasn’t specified by how much. “Now when we’re developing new products or looking for a new product category or new type of wine item,” she says, “we’re looking for products we can have made in Asia rather than Europe because of the high value of the euro.”

MindWare, a New Brighton, MN-based cataloger of educational toys, is also looking to Asia for less-expensive product alternatives, says president Jeanne Voigt. Many European manufacturers of wooden toys, she explains, insist on using the finest — and most expensive — woods, such as oak or maple. “That’s one of the things we’re willing to sacrifice,” Voigt says. “In Asia they use less expensive woods, like rubber wood.”

During the past year, the prices for merchandise that MindWare imports from such countries as France, Italy, and Spain, among others, have increased nearly 30%. A small portion of the cataloger’s 450 SKUs are from Western Europe, “but they are some of our better-selling items,” Voigt says. “And those that are we’re trying to find a way to make work from a cost standpoint. If they’re not, I’ll raise the price or find something else.”

Not all European merchandise can be reproduced in Asia, however. For some products, the origin of the product is part of the appeal. David Bolotsky, founder/CEO of New York-based gifts and accessories cataloger Uncommon Goods, says that his upscale customers are less likely to buy glassware from Japan than similar merchandise from Murano, Italy. “We are focused on giving our customers distinctive and quality merchandise, and in some cases we’ll pay a little more if need be,” he says.

To avoid raising prices and dropping popular European items, “we’re trying to look at other ways to get our costs out,” says MindWare’s Voigt, such as reducing packaging, renegotiating freight costs.

The catalog is also looking into “product downsizing,” Voigt says. For instance, in some of the building products the company sells, Voigt says “we might reconstruct them to have fewer pieces of one part that’s more expensive to produce, and instead, additional pieces of a part that’s less expensive — or just reconstruct it to have fewer pieces altogether.”

Indeed, the dollar’s decline against the euro “just makes you examine all your costs a little closer,” says Pickering & Simmons’s Weidenheimer. “It becomes an adjustment for exchange rate differences, and you sort of have to look at it that way accounting-wise. You can’t change your whole offering for something that’s going to be temporary.”

Weidenheimer has cause for optimism. Having hit a low point on Jan. 9 — one dollar was worth 0.778 euro — the dollar had risen to 0.829 euro by April 9.
Additional reporting by Mark Del Franco

Partner Content

The Gift of Wow: Preparing your store for the holiday season - Netsuite
Being prepared for the holiday rush used to mean stocking shelves and making sure your associates were ready for the long hours. But the digital revolution has changed everything, most importantly, customer expectations. Retailers with a physical store presence should be asking themselves—what am I doing to wow the customer?
3 Critical Components to Achieving the Perfect Order - NetSuite
Explore the 3 critical components to delivering the perfect order.
Streamlining Unified Commerce Complexity - NetSuite
Explore how consolidating multiple systems through a cloud-based commerce platform provides a seamless experience for both you, and your customer.
Strategies for Maximizing Mobile Point-of-Sale Technology - NetSuite
Learn the top five innovative ways to utilize your mobile POS technology to drive customer engagement, increase sales and elevate your brand.