If You Need to Cope, It's Too Late: Positioning Your Exports for Growth in a Strong Dollar Environment
California Apparel News recently spoke with finance-industry executive, Ken Wengrod, to find out the effects of the strong dollar on local apparel companies.
How are manufacturers coping with the rise in the U.S. dollar regarding exports, and what steps are they taking to minimize its effect on their revenues?
If you need to cope with the rise in the U.S. dollar ... it's too late.
Like most economists, many manufacturers were taken off guard by the recent surge of the U.S. dollar. With the exception of using derivatives and hedging currency risk, exporters do not have many options to cope with the rising U.S. dollar.
An astute apparel exporter should understand the importance of having a strong presence in Asia and Europe and that it will create a further demand for their merchandise in the U.S.
We see numerous companies power branding their image by placing their merchandise in key foreign retailers such as Selfridges, Harvey Nichols and Lane Crawford and online sites such as Net-a-Porter and Farfetch. This sort of advanced creative thinking can ultimately bolster their U.S. sales because numerous U.S. retailers shop those markets to look for new trends.
The real question that the exporters should consider is how to keep their price level once the dollar weakens and capture the positive effects on their margins.
Before manufacturers consider exporting, they need to know their competitive advantages and cachet. The exporters should focus on their ultimate customer, the consumer, and what makes their merchandise truly unique for the local market that they are selling to.
The demand for California lifestyle apparel and luxury items, such as leather merchandise and accessories, which are manufactured in the U.S., is still high in Europe and Asia. It hasn't been affected by the surge in the U.S. dollar.
People are willing to purchase items that have a certain cachet-a design that represents a certain lifestyle-and it separates the consumer from the crowd. This makes them feel good, even if it might be irrational.
We also see this behavior in our domestic market. A T-shirt being sold in a mass merchandiser for $20 is manufactured with the same piece goods as the T-shirt being sold for $70 in a small luxury store.
Yet, some buyers truly feel that there is a dramatic difference in the item. It's a perception vs. the reality. This is one of the reasons that price should not be considered a long-term competitive advantage. It should only be considered as a temporary advantage, depending on the strength of the U.S. dollar.
All the best,
Kenneth L. Wengrod
President / Co-Founder
FTC Commercial Corp.
Delegated Authority Lender with the Export-Import Bank of United States