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To: pallmer who wrote (9740)	1/22/2004 3:33:31 PM
From: pallmer	Read Replies (1) \| Respond to of 29602

22 Jan 2004 15:32 ET =DJ FOREX VIEW: Dollar's Slide Squeezing Many US Importers By Jamie McGeever A DOW JONES NEWSWIRES COLUMN NEW YORK (Dow Jones)--Hank de Cillia, a Long Island, NY-based product marketing consultant for the office furniture industry, set up two companies nearly two years ago with the aim of importing high-end office furniture from Spain and Italy. The dollar's plunge of around 30% against the euro in that time has meant his businesses haven't even got off the ground yet, nor will they if the currency's fortunes don't turn around. "It has certainly hurt us," de Cillia said. "It's entirely possible in a couple of months, once we look at the numbers, that (we decide) it won't work." The falling dollar may be giving a kiss of life to U.S. exporters but it's killing many small and medium-sized U.S. importers, even those that don't yet exist. The dollar has lost almost 20% of its value against the euro since the start of last year and around 35% since the euro hit its record low of $0.8230 in October 2000. Its fall against the euro in the last seven weeks has been even more staggering: around 7%. The dollar has declined less on a trade-weighted basis against a basket of currencies. But many analysts think the euro could trade as high as $1.40 before the end of the year. Such forecasts were pretty much unthinkable even a year ago and they represent a major potential headache for people like de Cillia. His two companies - Espana Furniture Partners and Venetto Furniture Partners - could each reasonably expect to post annual sales of between $2 million and $7 million from a single imported product line, he reckons. Instead, they're making nothing. This reflects a broader trend in the U.S. custom-made furniture industry - a sector heavily reliant on imports. Annual turnover plummeted to $10.33 billion in 2002 from $14.88 billion in 2000, according to the Business and Institutional Furniture Manufacturer's Association. It expects the market to have shrunk a further 4.25% last year to $9.89 billion. Weak economic conditions, falling domestic demand after the Sept. 11 terrorist attacks and the subsequent increase in red tape and security procedures they sparked are other factors behind the slump. Until the sector emerges from this "full-scale depression" and the dollar recovers, many companies will continue to hold back on investment and hiring plans, de Cillia said. Importers suffer from the depreciating dollar because it costs them more to buy foreign currency to do business abroad and to import foreign currency-denominated goods. The more the dollar loses its purchasing power, the more expensive it becomes to do business. China Exception To The Rule The dollar's slump is having a similarly brutal impact on large chunks of the residential furniture business too. "It's been devastating," said Jerry Epperson, a Richmond, Va.-based furniture analyst at Ferris, Baker and Watts, who noted the pressure on importers now is "severe." Imports of residential furniture into the U.S. from Italy, for example, fell 9.9% in the first nine months of last year compared with the same period a year ago, he said. Imports from France in the period were down 11.6% and from the U.K. were off nearly 15%. The dollar's not only struggling against the euro: it's also lost around 25% against the pound in the last two years. The full-year import numbers for 2003 will likely make even bleaker reading, given the dollar's steep decline in the final three months of last year. "There's a lot of tough decisions being made" in the boardrooms of foreign companies who rely heavily on sales to the U.S., noted Epperson. "Do they walk away from the U.S. market?" In this light, some companies are looking to protect themselves against currency swings in other ways. Many U.S. furniture importers, for example, are looking to strike up licensing deals with European manufacturers' and designers' products. They manufacture the goods in the U.S. and in return, pay their European counterparts a royalty or percentage on every sale. "It's a strategy of necessity perhaps and the Europeans may not be too happy about it but 10% of something is better than 100% of nothing," de Cillia said. "More and more (U.S. companies) are being driven to that approach." The major exception to this trend is China, which effectively pegs its currency, the yuan, to the dollar. This has meant the yuan has depreciated along with the dollar and so hasn't fueled an increase in import prices for U.S. buyers. Imports of residential furniture into the U.S. from China in the first nine months of last year totaled $4.32 billion, up around 25% on the year. Indeed, total U.S. imports in 2002 were $4.8 billion, Epperson said. The surge in imports from China is more than making up for the losses in other markets in terms of overall imports. In 2002, imports accounted for around 39% - or $11.87 billion - of U.S. demand for residential furniture compared with 33% in 2000. Of course, China's case is somewhat different. Many U.S. furniture makers say they aren't so much concerned about the strong euro pushing up their costs. What they do lose sleep over is the fact China's furniture manufacturers are moving up the value chain and eating into the U.S. market share. (Jamie McGeever, who covers foreign exchange markets in New York, has also reported on currencies for Dow Jones Newswires in Rio de Janeiro and London.) -Jamie McGeever; Dow Jones Newswires; 201 938 2096; jamie.mcgeever@dowjones.com (END) Dow Jones Newswires January 22, 2004 15:32 ET (20:32 GMT)