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After the invasion

Sun., Dec. 23, 2007

NEW YORK – The nation’s stores should enjoy those hordes of foreign holiday shoppers taking advantage of the weak dollar and snapping up everything from Ugg boots to status jeans, because next year the prices may not be as good.

When U.S merchants rebuild their inventories of luxury and other status goods next year, some analysts say they may feel some pain as manufacturers overseas start passing on higher prices to stores – dealing a blow to shoppers both from the U.S. and abroad.

“When tourists are coming they are not buying the stuff that we make. They are buying the stuff that we imported,” said Peter Schiff, CEO of Euro Pacific Capital, a brokerage firm in Darien, Conn. “U.S. retailers are getting a shot in the arm, but by next year, the discrepancy won’t be there.”

As the dollar weakened in recent years, prices of European handbags, clothing and shoes have already started to creep up, and the cumulative effect has some stores concerned. According to luxury consultant Robert Burke, some Italian ready-to-wear brands have seen prices rise as much as 20 percent in the last two years; consumers are now paying 10 percent to 15 percent more on status shoe brands like Jimmy Choo, which now average between $600 to $700, Burke said.

Stephen I. Sadove, chairman and chief executive of Saks Inc., which operates Saks Fifth Avenue, said he’s already seeing consumers become increasingly reluctant to pay higher prices in some European designer apparel.

Wall Street’s worry that the deluge of foreign tourists is only temporary was reflected in its reaction to Tiffany & Co.’s stellar third-quarter earnings results. The company said that about half of its 25 percent sales increase at stores open at least a year came from foreign shoppers. Tiffany’s stock has fallen as much as 5 percent since the announcement Nov. 30, as investors worry that its Manhattan flagship store has become a disproportionate driver of sales thanks to foreign buyers. Jewelry stores like Tiffany’s have another added worry: they most likely will have to raise prices next year, since key raw materials such as gold and silver are priced in other currencies besides the dollar, analysts say.

For now, U.S. merchants are enjoying the swarms of shoppers from abroad. Manolo Blahnik is opening its New York shoe store Sundays during the season and toy retailer FAO Schwarz will open Christmas Day for the first time, in part to accommodate foreign visitors.

In New York City, the top U.S. destination for foreign tourists, two million visitors from abroad are expected this holiday season, up 3.5 percent in the year-ago period, according to NYC & Company, the city’s official tourism and marketing organization. For the calendar year, NYC & Company expects up to 8 million foreign visitors, up 11 percent from 7.2 million in 2006. More importantly, foreign tourists’ spending has increased 25 percent to $1,750 per person this year, from $1,400 in 2005.

“This is my big shopping trip. And it was well worth it,” said Ali Costello, from London, who was at Lord & Taylor’s Manhattan location on Saturday, buying Australian Ugg sheepskin boots for her daughter. She plans to spend about $2,000 and had two bright red suitcases by her side that she had just purchased at Macy’s to shove all the bargains in.

George Malkemus, president of Manolo Blahnik’s U.S. division, said that foreign tourists this holiday season account for 40 percent of the trendy shoe company’s business in New York, compared to 20 percent a year ago. The big growth, he said, is coming from middle-income shoppers, like teachers and secretaries, who now can afford to splurge on a pair of the shoes popularized by TV’s “Sex and the City.”

“The reality is that this is a great moment of time,” said George Fertitta, CEO of NYC & Company.

Since late last month, the dollar has steadied. In afternoon trading on Wednesday, the euro fell to $1.4337, while the pound slipped to $1.9964 against the dollar.

Nevertheless, since the beginning of the year, the U.S. dollar has fallen about 9 percent against other major currencies, according to the Federal Reserve. Carl Steidtmann, chief economist at Deloitte Research, expects the dollar to lose up to 10 percent of its value next year.

For foreign shoppers, that means right now at least a 30 percent discount on merchandise; the savings can be more on hot items with limited distribution overseas like Ugg boots. For example, shoppers from Britain like Nini Adwars say that the boots cost about 200 pounds in London, or $400, but in the U.S., the footwear retails for about half the price. Adwars also planned to buy jeans at Abercrombie & Fitch, which she said cost double in London.

Mall of America, the nation’s largest retail and entertainment complex, estimates a 15 percent increase in the number of foreigners this holiday season, compared to a year ago, according to Doug Killian, director of tourism.


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