Weak dollar a challenge for importers
By Thomas Russell -- Furniture Today, February 1, 2004
HIGH POINT — The weak American dollar remains a challenge for some importers bringing furniture to the U.S. market.
In countries such as China, where the currency is pegged to the U.S. dollar, it isn't an issue. But the change affects other sources such as Indonesia, putting pressure on importers and overseas manufacturers alike.
In Indonesia, the rupiah's value has risen about 20.6% against the dollar since early 2002, meaning the dollar buys significantly less. The currency swing has posed a challenge for companies such as Padma's Plantation, which imports much of its product from Indonesia.
To offset major fluctuations, Padma's has used hedge funds to buy U.S. dollars at specific rates for 90-day periods. The company says its approach has helped it hold its 2003 expense related to currency fluctuations to around $150,000 to $200,000. Had it not used hedge funds, it estimates the expense would have been $300,000 to $500,000.
To avoid price increases on most of its goods, Padma's shifted some of its U.S. back room and accounting functions to Indonesia, where it now employs 31 people. A 3% increase in sales also helped offset the higher costs.
On a small number of goods with thin profit margins, the company did raise prices between 5% and 10%.
"With $150,000 in additional expenses, we had to make up for it somewhere," said Kevin Sypolt, Padma's vice president and chief operating officer.
Global Furniture Inds. also does a lot of business in Indonesia but has been able to hold prices stable for two years in spite of the rise in the rupiah's value, said CEO Jack DeBonis. The currency situation has pressured some Indonesian factories to look for ways to make products more efficiently, he said.
"Most of our manufacturing partners take a long view and realize that it's important that we keep our retail prices intact," DeBonis said.
Casa Bique President R. Allen Douglas said the currency situation hasn't affected his business so far. That's largely thanks to the competitiveness of factories it deals with in China, the Philippines and Thailand — even though the Thai baht has strengthened about 5% against the U.S. dollar since August and 11.9% since early 2002.
"Because of cost pressures from China, there have been some countries that have gotten aggressive in their pricing," Douglas said. "Consumers out there are demanding better prices."
In some cases, the cost of raw materials is having a bigger effect on the market than currency rates, said Master Design Furniture CEO Harry Lo.
"We have not seen price increases from our manufacturers yet," said Lo, whose company sources most of its goods in China and a much smaller percentage in Malaysia. "But the market is so competitive they (the manufacturers) always try to find another way to maintain their costs."
In some cases, the currency fluctuations have led to lower prices for Asian furniture imported to Canada.
Magnussen Home Furnishings and other importers based in Canada can use the stronger Canadian dollar to increase their purchasing power, especially in China with its currency tied to the U.S. greenback.
"As importers, that benefits us, so we have adjusted our pricing accordingly," said Magnussen Vice President of Finance Bruce Ballantyne. "We are passing the savings along to our (Candian) customers."
Like Magnussen, case goods importer Mazin Furniture has taken advantage of the strong Canadian dollar to lower prices on goods it sells in Canada — by 6% to 15% over the past year.
"It increases my competitiveness," said company President Michael Mazin. "Our prices have gone down, which means it is a better value for the consumer."
Still, increases in freight costs have limited the amount of savings importers can pass along. Mazin said he has seen price increases in some product categories, but doesn't necessarily attribute that to currency fluctuations.
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