Local Importers Feel Pinch From Plunging Dollar : Overseas Prices Increase, but Consumers Unwilling to Pay More for the Goods

Two years ago, boxes of imported Japanese porcelain filled to the rafters and cluttered the aisles of Universal Trading’s 24,000-square-foot warehouse in downtown Los Angeles. Stacked cartons now reach just a third of the way to the ceiling, says co-owner Yoshi Shimura.

The dollar’s 43% drop against the yen since June, 1985, has halved wholesale revenue to about $500,000, and the company is losing money, he says. “We cannot raise our wholesale prices 35%, so we have to cut the profits.”

The U.S. dollar’s renewed fall this year is hurting Southern California import brokers who buy inexpensive consumer goods in countries with strengthening currencies, such as Japan and Taiwan. From sewing thread and T-shirts to costume jewelry and sunglasses, prices overseas for products typically sold in variety stores and discount department stores are rising faster than U.S. wholesalers’ willingness to pay, importers say. The result has been shrinking sales and disappearing profit margins.

Threatens Bankruptcy

Importers of advanced industrial goods, such as heavy machinery, and of consumer luxuries, such as fine wines and expensive clothes, have not suffered yet from the dollar’s fall, experts agreed. Demand for such products tends to be less responsive to price increases.

But for the mostly small companies with short credit lines which import discount consumer merchandise, the dollar’s recent decline threatens bankruptcy.

“Some guys have just given up and taken their money and left,” said Ed Garber, president of Ed Garber Associates, a trade finance company specializing in textiles and apparel.

The merchant banking and trading company used to do 60% of its business with importers and 40% with exporters, but those percentages have been reversed this year as importers feel the pinch, Garber said.

Import brokers are the mayflies of international trade. Often established by immigrants, such firms make money by finding and buying products from low-cost sources overseas, paying freight and duties to bring the goods into the United States and then selling at a markup to U.S. wholesalers and retailers. They tend to go out of business when a few misjudged purchases result in large quantities of unsalable merchandise or when the foreign producer begins exporting directly to the U.S. marketer.

Bypass Brokers

“Most of these are small businesses which are notoriously undercapitalized, and their contacts in these countries are changing, too,” said Jack Kyser, chief economist for the Los Angeles Area Chamber of Commerce.

Large corporations, such as department store chains, rarely deal with import brokers. Instead, companies like Macy’s and the Limited purchase directly from foreign suppliers to ensure quality control and to eliminate middlemen fees.

“Particularly the quality control,” said Jim D’Andrea, a spokesman for Macy’s. “We want to be there to make the decisions.”

The dollar’s steep fall against the yen has bruised worst those importers who, like Universal Trading, rely on low-cost Japanese goods easily produced in other countries. For example, Wing’s Oriental Gifts now sells just 240,000 pairs of Japanese nylon-knit fruit-packing gloves each year, down from 480,000 pairs two years ago, said owner William Wing. The Japanese supplier of the gloves has raised the price per dozen from $3.50 to $4.50 because of the yen’s rise, allowing U.S. producers to regain much of the market, he added.

Foreign manufacturers usually bill their customers in U.S. dollars--Universal Trading is an exception, paying its invoices in yen. Manufacturers are now raising prices because the weakening dollars they receive in payment buy less and less of their local currency.

Although the Taiwan dollar and South Korean won have not climbed as much as the yen, import brokers making purchases in these currencies also are pinched between rising prices and flat demand.

“Even if the manufacturer charges 25% (more), we can only add 18% (to our prices), then maybe a little later 2%, then maybe two months (later, another) 2%,” said Wayne Jung, vice president and general manager of Asia Enterprises.

Borrow Heavily

The Los Angeles-based company imports from Taiwan and elsewhere in Asia about $5 million a year worth of sewing thread for resale to U.S. clothing producers, he said. Company profits are down by at least 10% this year, he added.

The U.S. dollar has fallen 13% against the Taiwan dollar since the beginning of the year, and is down 6% against the won .

Price hikes have hit small import brokers hardest. Such brokers borrow heavily to pay for their purchases and must find further financing to maintain their quantity of imports.

“We have a limited credit line, and we have to pay 10%, 20% more,” said Yungho Jung, owner and president of Los Angeles-based Goldstone Imports. The company sells at wholesale about $1.2 million a year of costume jewelry from Taiwan, South Korea and Hong Kong.

Less affected by the dollar’s fall are import brokers for industrial products and high-priced consumer items, said John Leitner, president of the Customs Brokers & Freight Forwarders Assn. “With rare exceptions, it appears that the cost can be passed on to the customers.”

Trading advanced industrial products typically requires more technical expertise and stronger financing than dealing in consumer goods, Kyser said. Machinery often is expensive to buy and stock, making start-up costs high. New companies find it more difficult to break into the business, so competition is sometimes less cutthroat.

“As you move up the technological scale, you may get more stability,” Kyser said.

Foreign manufacturers of some industrial products also have avoided raising prices to importers so as to retain market share.

For example, the yen’s rise has done little to reduce importers’ margins on Japanese steel because Japanese steel companies have raised their dollar prices only 5% to 10%, said Louis Ribman, a director and former president of the West Coast Metal Importers Assn. Area steel importers, he added, have not had to trim their 3% to 5% markups when selling to U.S. distributors.

Unscathed by the dollar’s fall are import brokers buying from countries whose currencies are pegged to the dollar or actually have fallen faster than the dollar. “I think we’re in a good spot--we don’t have any problems,” said A. Robert Lawrence, president of A. R. Lawrence & Associates.

The Los Angeles-based company imports annually about $500,000 worth of silk from Hong Kong and China, Lawrence said. The Hong Kong dollar has been maintained through government intervention at 7.8 to the U.S. dollar for more than three years, while the Chinese government actually devalued the yuan on July 5, 1986, to 3.7 from 3.2 per U.S. dollar.

“No effect,” agreed Fopon Kongfinfap, whose private company, Siam Imports-Exports, brings from Thailand about $500,000 worth of rum and rice spirits each year. The Thai baht has risen just 2% against the dollar since the beginning of the year.

Further falls in the dollar could push more local import brokers out of business. Teetering on the edge of bankruptcy, a Los Angeles-based importer from Taiwan expects layoffs to begin soon.

“Our business is getting worse and worse, and it’s hard to survive,” the sunglasses importer said.