June 21, 2010 / 7:05 PM / 8 years ago

Western retailers: yuan move not all bad

NEW YORK (Reuters) - Western retailers may pay more for goods they import from China as the yuan appreciates, but the thought of millions of Chinese consumers who will be able to shop at their stores is helping to ease the pain.

Farooq Kathwari, CEO of Ethan Allen, appears at the 2010 Reuters Consumer and Retail Summit in New York June 21, 2010. REUTERS/Shannon Stapleton

Executives who spoke at the Reuters Consumer and Retail Summit on Monday took solace in the idea that any appreciation following China’s weekend statement that it would let the yuan appreciate against the dollar would likely be gradual.

They also see room to move more manufacturing out of China and into other countries with lower labor and other costs.

“I don’t think that there is any sense that there is going to be any immediate impact ... The open question is how quickly and how far they’ll actually let the currency revalue, anyway,” said Matthew Shay, president and CEO of the U.S. National Retail Federation, a retail trade group.

Some retailers see margins hit because their goods manufactured in China will be more expensive in dollars or euros. Retail stocks dropped more than the broad market on Monday in the wake of the yuan announcement. The Standard & Poor's Retail Index .RLX fell almost 2 percent, while the S&P 500 .SPX was down 0.4 percent.

“I can’t see any way for the yuan other than up, but I think the pace at which it will happen will be quite carefully modulated by the Chinese government,” said Ian Cheshire, chief executive officer of British home-improvement retailer Kingfisher Plc (KGF.L)

At the same time, “there will be opportunities to that in that market, as Chinese consumers have greater purchasing power with their own currency,” Shay said.

For example, U.S. furniture maker Ethan Allen Interiors (ETH.N) sources some of its products from China, but expects sales to that country to at least mitigate higher costs, if not overcome them, CEO Farooq Kathwari said.

“For us, I would say the net is going to be either neutral or positive,” he said.

Matt Shay, President and Chief Executive of the National Retail Federation, appears at the 2010 Reuters Consumer and Retail Summit in New York June 21, 2010. REUTERS/Shannon Stapleton

Beyond the retail industry, the yuan’s move is expected to help companies that supply commodities or heavy equipment to China’s fast-growing economy, like Caterpillar Inc (CAT.N), as well as foreign chains, like fast food operator Yum Brands Inc (YUM.N), which sell and source their goods locally.


China already ranked No. 1 in the Global Retail Development Index released on Monday by management consulting firm A.T. Kearney. That index is an annual study that tracks which countries are the most attractive for retailers in terms of foreign growth and expansion prospects.

    The Chinese market is expected to become even more attractive as the yuan appreciates, A.T. Kearney said.

    Mattel Inc (MAT.O), for example, manufactures about 80 percent of its toys in China, mostly for export. But it is also seeing a robust local market for that merchandise these days.

    “The Chinese economy is becoming a more consumer-based economy,” said Bryan Stockton, president of international business for the toymaker. “It also means the Chinese economy is developing to the point where brands are becoming more important.”

    Retailers said the move in the yuan could eventually accelerate a trend toward moving manufacturing to Vietnam and other lower-priced countries, but this would take time.

    “China will still be very competitive ... Even (with a) 20 percent exchange rate appreciation, in some products the scale of the savings versus UK or European manufacturers is still big,” Cheshire said.

    It also is not easy to move manufacturing from one country to another, however, so retailers will have to look for ways to mitigate the impact of the rising yuan while still buying products from China.

    “We will continue to stay in China,” said Ben Gordon, CEO of British mother and baby products maker Mothercare (MTC.L) . “We think the Chinese sourcing really is here to stay though the renminbi (yuan) rising is not going to help on cost ... through sourcing offices (in Hong Kong and Shanghai) we’ll keep that down.”

    Additional reporting by Dhanya Skariachan and Phil Wahba in New York, Mark Potter and James Davey in London; editing by Michele Gershberg, Gerald E. McCormick and Matthew Lewis

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