(Fortune) -- Thinking of getting Mom a new Fendi bag for the holidays -- or celebrating New Year's with Veuve Cliquot champagne? You might want to start buying now.
As the euro continues its march upward against the dollar, Americans should expect sharp price hikes on a range of European imports, from designer fashions to bubbly.
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| With the euro rising against the dollar, American consumers are paying a lot more for European goods. |
Since January, the euro has gained more than 10 percent against the dollar, which hit a record low on Monday. One dollar now buys just 69 European cents. That compares with 2002, when $1 U.S. dollar got you $1.10 euros.
The dollar's decline is wreaking havoc on American retailers, whose dollar-denominated budgets now buy fewer European goods. For U.S. consumers, this means costs are rising -- sometimes by as much as 50 percent.
"We're seeing double digit price increases across the board," said Ron Frasch, the chief merchant of Saks, which is currently placing orders with European designers for the Fall 2008 season.
An Ermenegildo Zegna Italian suit currently selling for $1,995 at Saks will cost $2,195 a year from now, Frasch said. Also hard hit: women's designer shoes, which now go for as much as $900 a pair, compared with $600 a year ago.
European fashion designers aren't the only ones smarting from a skyrocketing euro. Also feeling the pressure are Italian furniture makers, German car manufacturers, French Champagne growers and Spanish olive farmers. "We're seeing an increase of 30 percent in our costs," said Loris Scagliarini, whose San Anselmo, Calif.-based company, WineCountry.IT, imports a variety of products from Italy, including wine and olive oil.
The decline in a country's currency tends to benefit exports, which become less expensive around the world, while at the same time making imports more costly. For the eight months ended in August, Americans imported fewer goods from the European Union (54.6 billion kilograms, compared with 63.6 billion kilograms in the same period the year earlier), but paid more for them ($234 billion, versus $222 billion), according to the Commerce Department.
The resulting currency disparity has made America an inexpensive playground for foreigners. "We're clearly seeing an influx of foreign shoppers," said Saks Chief Executive Stephen Sadove. Saks recently played host to 125 women from Iceland who flew to New York via private jet for a weekend-long shopping spree. Iceland is not part of the 13 countries that share the euro.
Given the euro's strength, higher prices on Fifth Avenue and Rodeo Drive are unlikely to curb spending by foreign tourists. Americans, on the other hand, are headed for sticker shock.
So far, many large European retailers have absorbed the rise in the euro through currency hedging contracts and by shifting manufacturing to lower-cost Asian and the United States. Mercedes-Benz, for instance, which said it has so far refrained from passing additional currency-related costs to American consumers, makes more than a quarter of the cars sold here at a plant in Tuscaloosa, Alabama.
But such measures won't work indefinitely. Hedging contracts expire and there is a limit to the efficiencies manufacturers can wring out of their supply chains. "We are trying to absorb most of the currency impact, but as the dollar continues to decline in a significant way, it's not feasible for us to carry 100 percent of the extra cost going forward," said Robert Triefus, a spokesman for Giorgio Armani.
Among the hardest hit are small designers, who lack the global resources of larger firms. British designer Nicholas Kirkwood said he was forced to mark up his Italian-made shoes 10 percent in the last six months to preserve profit margins. At $1,000 a pair, his shoes are now too pricey even for luxury stores like Saks and Jeffrey, with boutiques in Atlanta and New York. Kirkwood said both retailers chose not to pick up his line because of the cost.
Even designers that are part of larger conglomerates are starting to feel the pain. On a recent buying trip to Paris to stock up on merchandise for her retail stores in New York City and Birmingham, Mich., Linda Dresner fell in love with a collection of Chloe dresses in bold, colorful prints. Then she did the math.
After converting the euro wholesale price into dollars and adding her standard markup, Dresner said the dresses would have carried a retail price of $5,000 each. "At that price, it's just too expensive for our customers," she said. Chloe is owned by the Swiss luxury giant Compagnie Financiere Richemont.
Some companies are hoping to make the higher prices more palatable to consumers by adding features. The 2007 BMW 3 Series and the Volvo S80, for instance, are 6 percent and 11 percent more expensive, respectively, than their previous models, but they've also been redesigned and come with higher-performing engines, according to the Kelley Blue Book, which tracks car prices.
The strategy has had some success. Partly as a result of upgrades, European carmakers have won back some of the market share they lost over the past five years, although they're still down from 2002 levels, according to the National Automobile Dealers' Association.
Other manufacturers are compensating by using less expensive materials. "A lot of the American furniture manufacturers who used to get chair frames from Italy or Spain are now getting them from Asia," said Mark Bograd, the owner of Bograd's, a retailer of high-end furniture based in Riverdale, N.J.
It's not clear yet if rising costs are impacting demand, but so far the added expense isn't quenching American thirst for European wines. U.S. imports of French and Italian wine, according to the Adam's Beverage Group, have grown by more than four million gallons in the last year.
But as prices for European goods continue to rise, American consumers are bound to sober up sooner or later. 
