Sinking dollar unlikely to raise prices
By Brian Carroll -- Furniture Today, August 5, 2002
HIGH POINT — HIGH POINT — Fluctuations in the value of the U.S. dollar will have little or no effect on wholesale or retail furniture prices this year. Even with an increasingly global supply chain, most manufacturers have hedged against such changes.
The dollar is down about 7% since January against a basket of several foreign currencies, with the euro and the yen especially stronger.
While prices of imports generally go up when the dollar weakens because $1 buys less, much of the trade in furniture is done with China, Canada and Mexico, where the exchange rate changes have been less dramatic.
For Magnussen Presidential, for example, most imports come from China, where the currency is pegged to the U.S. dollar. The impact, therefore, has been "minimal," said company President Jeff Cook.
Magnussen is an interesting case, since it has facilities both in the United States and in Canada. This allows it to mitigate the effect of the U.S. dollar's slide by using the Canadian currency, Cook said.
"A stronger Canadian dollar lowers our cost of sales," he said. "We have a natural hedge."
Century Furniture also reports a negligible impact from the dollar's dip, primarily because the company's global vendors bear the currency risks.
"And we are pretty tough on price increases," President Bob Maricich said.
A weaker dollar would help U.S. companies that are big exporters, particularly to Europe and Japan. But the U.S. furniture industry doesn't have any big exporters, bringing in about seven times as much product as it sells abroad.
Conversely, those companies hardest hit are Japanese and European companies that depend heavily on American sales. Excluding other variables, their products are suddenly more expensive than those of rivals in Asia and the United States.
Upholstery giant Natuzzi, the biggest European furniture supplier to North America, hedges its currency risks by setting its foreign exchange policies and contracts 12 to 18 months in advance of collection, according to Nicola Dell'edera, the Italian company's finance director. For this reason, pricing on its Italian-made upholstery isn't based on the dollar-euro rate.
"We are not collecting today at today's exchange rate," he said. "It gives us an advantage over those who are selling on a spot basis."
Dell'edera said the dollar would have to slide to $1.15 or $1.20 to the euro before Natuzzi would have to "rethink what we're doing."
Such a slide is not likely. However, currency fluctuations are difficult to predict, and there is little agreement on whether the dollar's recent slide will continue.
The euro, now the official currency for 12 European nations, was worth 89 cents U.S. in January but has strengthened steadily, and last week was priced at about 99 cents.
Asian companies also are closely watching the currency markets and the U.S. economic situation. If Asian stock markets tumble in lockstep with further weakness on Wall Street, and local currencies fall in reaction, the region could suffer. So far, however, that's not happening.
"Short-term, as the dollar weakens, it tends to make us more competitive," said Bob Booth, president at Philippines-based Linea Fina. "What is important is that we do not get a significant slide in our foreign exchange rate. We saw this in 1997 and it caused massive problems in Asia."
Booth said companies can plan around a gradual weakening in any currency. And since 1997, as a result of what was then called the Asian flu, many economies in that region are more balanced.
Dollar fluctuations matter little to many of the big Chinese exporters. For example, at Lacquer Craft, one of mainland China's most successful furniture producers, buying and selling is done exclusively in U.S. dollars. This has meant an increase in the cost of wages paid to its local work force, but, as competitors of Chinese factories are all too aware, labor is only a small fraction of production costs — less than 20%.
The falling dollar has "not affected us much at all," said Mohamad Amini, Lacquer Craft vice president. "We are more affected by the weak (global) economy."
| Using materials ranging from proven standards to exotic novelties, occasional furniture is coming from an increasingly diverse array of sources from around the globe. This Sinatra group from Magnussen Presidential blends bamboo, coconut shells and crocodile-embossed leather. For more of the hottest looks, see page 8. |
