European Exporters Struggle as Dollar Drops

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PARIS — At Yves Saint Laurent, the storied French design house that manufactures exclusively in Europe, the plunging value of the American dollar has the chief executive officer, Valerie Hermann, thinking about the number of pockets on a skirt and the price of embroidery on a dress.

Ms. Hermann is adamant that YSL must include in its ready-to-wear offerings cocktail dresses that don’t cost more than 1,900 euros. “It’s a crucial limit,” she said.

Six months ago, that was the equivalent of $2,565. Today, she’d have to sell the same garment for $215 more to make the same profit. But Ms. Hermann can’t because she is reluctant to pass on the increase to the consumer. So if Ms. Herman can eliminate a pocket on a garment without sacrificing the integrity of its design, she will. “I have never been as careful as I am now to look at the entry-level price of a product,” she said.

The euro’s rise and dollar’s slide are squeezing European exporters’ profits or multiplying their losses, prompting layoffs and plant closings. Firms are not only curbing production of goods headed to American buyers but also rethinking the way they do business. The euro recently passed the record $1.47 mark, gaining 11.5% since the beginning of the year against the greenback. A strong British pound, moribund Japanese yen, and undervalued Chinese yuan also play roles in this tale of currency chaos, from a European exporter’s perspective.

Most emblematic of the problem has been the impact of the euro/dollar relationship on the aeronautics industry — and particularly on France’s Airbus, whose main rival is American-based Boeing.

With a falling dollar making Boeing’s products cheaper outside America and Airbus’ more expensive, the chief executive of Airbus’ parent EADS, Louis Gallois, recently described the sinking American currency as a “Sword of Damocles” hanging over the company’s future. He vowed to cut an additional 1 billion euros in operating costs by 2010 or 2011.

This would mean more layoffs at a company that is already purging 10,000 jobs — a decision made when one euro equaled $1.35. “We must react,” Mr. Gallois told a French radio station last week.

This week, speaking at the Dubai Airshow, the chief of Airbus, Tom Enders, further spelled out the problem: “As you know, if the dollar decreases by 10 cents, we are challenged to save another 1 billion euros. Therefore, Airbus is currently undergoing fundamental turn-around of the company. In a nutshell: A ‘new Airbus’ is under way.”

Less dramatic but no less critical is the impact on other European companies that export sophisticated equipment, technology, cosmetics, cars, and luxury goods. For firms that make a large portion of their sales in America or compete with firms that deal in dollars, survival depends on raising prices, cutting costs, or hedging currencies.

Nearly every day, another company announces more lost earnings and job cuts and blames the currency commotion. Many companies are simply trying to find new ways to trim their euro-based operations, and in the case of some luxury firms, that involves lifting the taboo against relocating outside of Europe. Armani, Prada, and Boss are already “assembling” parts of the second and third lines of their collections (not couture or pret-a-port) in China.

Recently, Louis Vuitton, always particular about the provenance, decided to open a shoe factory at a 30-acre site near Pondicherry, India, according to reports in the European and Indian press. The shoes that come out of that factory will still carry the “Made in Italy” label because Indian workers will be attaching soles to upper parts made in Italy.


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