PARIS — At Yves Saint Laurent, the storied French design house that manufactures exclusively in Europe, the plunging value of the U.S. dollar has Chief Executive Valerie Hermann thinking about the number of pockets on a skirt and the price of embroidery on a dress.
Hermann is adamant that YSL include in its ready-to-wear offerings cocktail dresses that cost no more than 1,900 euros. "It's a crucial limit," she said.
For The Record
Los Angeles Times Tuesday, November 20, 2007 Home Edition Main News Part A Page 2 National Desk 1 inches; 37 words Type of Material: Correction
Weak dollar: In Saturday's Section A, a graph accompanying a story about the declining value of the dollar indicated that it was worth 0.49 of a British pound, but the data point was incorrectly placed at 0.475.
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 Hermann can't because she is reluctant to pass on the increase to the consumer.
So if Hermann 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. "Because I know that currently in the U.S. the market is driven by that, and, to a greater extent, by this currency problem."
The euro's rise and dollar's slide are squeezing European exporters' profits or multiplying their losses, prompting layoffs and plant closings. Companies are not only curbing production of goods headed to U.S. 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. It closed Friday at $1.46; a dollar bought 0.68 euro.
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 U.S.-based Boeing.
With a falling dollar making Boeing's products cheaper outside the U.S. and Airbus' more expensive, Louis Gallois, chief executive of Airbus' parent EADS, recently described the sinking U.S. 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," Gallois told a French radio station last week.
This week, speaking at the Dubai Air Show, Airbus chief 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 a fundamental turnaround of the company. In a nutshell: A 'new' Airbus is underway."
Survival strategies
Less dramatic but no less crucial 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 the United States or compete with firms that deal in dollars, survival depends on raising prices, cutting costs or hedging currencies.
The 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. Nearly every day, another company announces more lost earnings and job cuts and blames the currency commotion.
Last month it was British aerospace company Rolls-Royce (not the carmaker) declaring that it wants to move 230 jobs and its operations for making industrial turbines from its plant near Liverpool, England, to one in Mount Vernon, Ohio. The company cited high costs and the strength of the pound against the dollar for the decision.
This week, Infineon, Germany's top semiconductor maker with almost 8 billion euros in annual sales and 41,500 employees, announced that it lost 150 million euros in the latest quarter because of the weak dollar. Exports generate nearly half of Germany's gross domestic product, and if the dollar hits $1.50 against the euro, German bankers are predicting that the whole economy will suffer.
"For a while, European companies had wiggle room for the falling dollars to eat up their profit margins," said Alan Ahearan, an economist at Bruegel, a Brussels-based think tank. "But it's fallen so much it's no longer profitable to sell in the U.S. They can't compete with U.S. or Asian firms in the United States. So they're going to have to reduce European exports, and that implies layoffs and downward pressure to the European economy."
Government officials have yet to offer relief to these exporters, but European Central Bank President Jean-Claude Trichet became more forceful in his language last week when he said currency rate shifts had been "brutal."
Enraged that Trichet hadn't intervened to help small businesses, Reinold Geiger, president of L'Occitane of Provence, wrote to Trichet to complain that 12% of his annual $400 million in sales had "evaporated" over the last year because of the currency inequity. He received no response.
Geiger has spent years establishing his line of body and skin care products and fragrances made in the south of France, opening 12 stores in the Los Angeles area alone. "We just can't make our line in China," he said.
