Euro vs. dollar exchange rate hits manufacturers

Basel—For many European jewelry exporters, it has been their worst nightmare: an appreciating euro set against a depreciating dollar.

The harsh reality is that U.S. retailers have experienced a rise of about 20 percent in the cost of European jewelry imports over the last year alone, as the dollar's downward slide against the euro has picked up pace.

For Europeans, the struggle to maintain market share in the United States is a serious preoccupation, while trying to actually grow the market seems more of a distant goal. But, this is not the whole story. Those European jewelry companies that have been savvy enough to shift their production to Asia, as well as those operating in the luxury end of the market, have largely been shielded from the vagaries of the euro/dollar exchange rates. Some European jewelry manufacturers, especially the French, are benefiting from the Japanese market's return to form. This recovery is good news for those who have had to deal with the double whammy of the dollar problem and weak domestic demand, as is the case for Italian manufacturers and, to a smaller degree, those in Germany, where domestic demand has crumbled while exports to the United States have gained some ground.

"The situation with exports has improved, as the euro has weakened somewhat against the dollar in recent weeks," said Alfred Schneider, general executive manager of BV Schmuck+Uhren, the Federation of German Jewellery, Watches, Clocks, Silverware and Related Industries.

But in any case, high-end German jewelry exports seemed untouched by the dollar's fall.

"[German] exports to the U.S….actually rose slightly last year. [U.S.] buyers still want to purchase German designs," Schneider said, adding that the wedding ring and chain sectors appeared to have been the most robust. Business also picked up this year at Munich's Inhorgenta show. But while domestic demand is very poor in Germany, new opportunities are opening up in the former East European countries, Schneider said.

"Exports to Eastern Europe—especially Poland, the Czech Republic and Hungary—are growing," said Schneider.



Moving manufacturing to Asia

Ralf Braun, export manager at Hammer & Söhne, one of Germany's best-known high-end jewelry manufacturers, said his company has escaped the euro problems by producing outside of Europe.

"The weak U.S. dollar is not a problem for us, as we are producing outside of the Eurozone in Asia—China, India and Thailand. We started shifting our production there in the later 80s, and no longer manufacture in Europe," he said.

The company's production, however, is still managed by Europeans, while its U.S. subsidiary is able to serve the needs of the American market directly. As has happened with Hammer & Söhne, Braun sees Europe's role as evolving from a manufacturing base to a marketing base.

"R&D, design, sales and marketing all remain in Europe. Our brand is serviced from Europe," he said.

According to Emmanuel Descheemaeker, export manager of CFHBJO, the French Jewelry and Watch Federation, the weak dollar has hurt France.

"The euro versus the dollar is a problem for us because French products are more expensive in the U.S. than before, by as much as 30 percent," he said. However, prices of French watches were adjusted downward in the United States last year, as the number of pieces exported doubled to over 100,000, but there was "only a slight increase in value." Descheemaeker believes that the United States—France's second export market after Japan, representing about 10 percent in value—is a difficult market for the smaller French brands.

"[The smaller brands] have managed to maintain market share without lowering prices, but it's proving a very difficult market for them to grow," he said. The euro's impact has been "slight" in Japan, Descheemaeker noted, but the market there is improving, and buyers are beginning to seek more yellow gold items.

"The exchange rate is a very big problem," said Javier Tort, director of Joyex, the Spanish association of jewelry manufacturers. "[European] jewelry is now 30 percent more expensive than it was three or four years ago. U.S. buyers are switching to lower-cost suppliers."

Although luxury and high-end Spanish exporters, such as Carrera y Carrera and Ramon, have been able to maintain market share, Tort said that the weak U.S. dollar "is not good for anyone." Moving production to low-cost centers is one solution for Europe's manufacturers, and branding is another, Tort said.