The Upside of The Weak Dollar, Part II

When I last posted on the subject, I was trying to figure out if some U.S. designers were making money on the exchange rate. Many U.S. designers produce their collections in the U.S. (or in Asia, which still trades on the dollar) but sell from European showrooms in prices that don't reflect the exchange rate benefit. Multibrandman wrote, "most designers use a current exchange rate and let the retailer get the advantage." The retailers I spoke to didn't seem to agree. At all. But one said that in the case of Diane Von Furstenberg, the money the company earns in Euros is kept in Europe -- to be spent on fabrics for the next season, which have become more expensive as the exchange rate worsens. It's a way for them to help hedge the exchange rate.

But it also means that the U.S. brands are passing up an opportunity to increase market share in Europe. If they're priced the same as the European competitors here, retailers don't have added incentive to write more orders.

TodayWWD reports that U.S. stores are cutting back on European brands because of the added expense of the Euro. They quote a U.S. retailer as saying that European brands are between 20 and 40 percent more expensive this season, while U.S. brands that use European fabrics are only up five to 10 percent. Many of the biggest European brands like Prada and Gucci enforce strict minimum orders, which means that the labels are being dropped entirely from some U.S. stores. But other, smaller, labels like Piazza Sempione are being more flexible to retain the business.

I know that all brands are trying to use less expensive fabrics, but I haven't heard of many abandoning the European mills entirely. But that might be the next step if things don't improve soon.