Coping With Currency Chaos : Trade: The dollar’s decline hurts importers but gives exporters a boost.
The fainting act staged by the dollar in recent months has been rough on Zaven Kassabian, who imports Italian ceramics for sale to retailers. Kassabian must grapple with an Italian lira that is nearly 22% stronger against the dollar than it was a year ago, making his goods more expensive.
“The prices are getting higher and the sales are less,” said Kassabian, owner of Intrade Imports in downtown Los Angeles. “It’s unfortunate. Some of the nice things that we cannot produce here, people cannot afford to buy.”
The story is different for exporters such as Mattel, whose goods become cheaper overseas when the dollar is weak. But because the El Segundo-based toy maker, which derives about half of its sales from 100 foreign countries, doesn’t want a big loss when the dollar rises, it employs a sophisticated hedging program to reduce the impact of currency fluctuations.
The recent weak showing of the dollar against many foreign currencies--particularly against the German mark--has made itself felt in different ways, particularly in Southern California, a region heavily dependent on international trade. For the most part, exporters win and importers lose.
But some exporters are not winning as big as they could. Some large companies, schooled during the volatile 1980s, have cushioned the impact of the dollar’s fluctuations with currency-hedging programs using such trading instruments as futures and options. What’s more, slowing economies in Europe and Japan might temper any buying binges from overseas consumers.
And while not every importer is being hurt, those who are suffering find themselves in a double squeeze--costs are rising at a time when it is difficult to raise prices because of the sluggish economy.
For many importers, the problem is clear. With the German mark now worth about 72 cents, compared to about 57 cents a year ago, a U.S. importer must now pay $720 instead of $570 to buy something worth 1,000 German marks. A U.S. exporter would be in the happy position of receiving $720 for merchandise billed at 1,000 German marks, instead of last year’s $570.
Such mathematics work against Isabelle and Richard Henderson.
For 16 years, the Hendersons have been bringing merchandise from the British Isles to their Carroll-McKenzie Scottish & Irish Imports shops in Santa Monica’s Promenade and the Pacific Palisades. But the current combination of recession and a weak dollar are the worst they’ve ever faced, Isabelle Henderson said.
The British pound is now worth about $2, compared to about $1.68 at this time last year--a 19% increase in costs for the Hendersons.
“To keep our customers, we have to absorb the costs ourselves,” she said. “Maybe in ordinary times it would be different, but we’re in a recession and people don’t have the money. You can’t get blood out of a stone.
“We just keep hoping and praying that things will get better,” Henderson said. “I don’t know how long we can do this.”
Other importers say that while the dollar’s slump hurts, other problems are more worrisome.
“Unfortunately, we’re more concerned about the luxury tax than we are about deviations of the dollar compared to the mark,” said Dan Hopper of Porsche Cars of North America, based in Reno.
On the export side, Mattel is one of many larger companies that have been through this before and have developed extensive hedging programs, said Michael G. McCafferty, senior vice president and treasurer. Mattel tries to lock in its costs of production overseas by using such financial instruments as forward exchange contracts and currency options.
“We don’t try to make money on a hedging program . . . not on a speculative basis,” McCafferty said. “That’s a dirty word.”
But because currency fluctuations can help as well as hurt, hedging has its downside. “If we had done nothing, this happens to be a year when we would be taking money to the bank,” he said.
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Still, because Mattel does business in so many countries with so many different currencies, the company ultimately will benefit from currency translations, McCafferty said.
Paramount Studios, like most of its Hollywood counterparts, tries to avoid the hazards of currency fluctuations by negotiating all long-term overseas television contracts in dollars, spokesman Harry Anderson said.
With its movies, Paramount is making a bit more overseas these days because of gains made when tickets sold in the local currency are converted into dollars, Anderson said.
“Patriot Games” and “Wayne’s World” are playing in Europe and “both those movies are doing well and collecting a little bit more than they would because the dollar is down,” he said.
But it all evens out when the dollar regains strength, he added.
