Zanzibar Home Page

Sacramento importers feel sting of global economy

Scott Farrell, co-owner of Zanzibar Trading Co. in midtown Sacramento, gives Lillian Angeles details about some art pieces. Farrell travels around the world to look for art, jewelry and unusual objects. He said the rising price of fuel has led to a 400 percent increase in shipping costs in the past two years.
 photo by Florence Low / flow@sacbee.com
 

By Darrell Smith - dvsmith@sacbee.com
Published Sunday, July 6, 2008

Story appeared in BUSINESS section of the Sacramento Bee Newspaper, Page D1

Scott Farrell has traveled the globe for years searching for jewelry and gifts for his midtown Sacramento boutique Zanzibar Trading, sometimes trekking as many as 300 days a year from Niger to Nepal, Tanzania to Thailand.

But the importer's world is changing before Farrell's eyes. A sinking dollar, a rampaging euro, skyrocketing oil, political instability it's a tough time to be an importer.

In Bangkok, the baht is gaining on the greenback. In New Delhi, his artisans and vendors say no to the dollar. Their request? Rupees, please.

This year, for the first in nearly 20, Farrell is staying home.

"I've been traveling for 18 years they wanted dollars. Now, they don't want dollars," Farrell said. "In Mexico, they want pesos. In India, they tell me, 'Please don't send us dollars. We want rupees. The dollar's falling too quickly.' "

Importers like Farrell are finding challenges literally all over the map.

The U.S. dollar's weak performance against foreign currencies means importers are paying more for products and fuel. Investors turning to silver and gold as hedges against a dropping dollar have forced jewelry costs higher.

Then there's getting the goods from point A to point B.

"The challenge is finding products that are going to sell, but the bigger challenge is shipping," Farrell said. "We've seen a 400 percent (cost) increase in two years."

Much of the increase goes back to the dramatic spike in fuel costs. Oil again reached a record high, passing $145 a barrel on Thursday.

As overseas currencies continue to rise, U.S. importers are getting more competition from other nations, where cash goes further and consumers are willing to pay more for the product.

And other factors are at play. The influential European Central Bank, which is responsible for monetary policy for the 15-country Eurozone, raised its interest rate a quarter-point, to 4.25 percent, on Thursday.

The euro traded late Thursday at nearly $1.57to the dollar.

The interest rate hike could further weaken an already slumping dollar, widen the gap between the euro and the greenback, and put more pressure on U.S. importers, said London-based currency expert John Hardy of Saxo Bank.

Hardy writes the bank's Forex Market Update, which covers daily news, comments and charts on the major G10 currencies.

"Is this going to kick off the euro going to $1.60 (to the dollar)?" Hardy asked. He's laying 50-50 odds. Only 50-50, he says, because of tensions within the European Union. While Germany's economy has continued to chug along with relatively little damage, others like Spain's and Italy's, are struggling, he said.

As for the dollar, Hardy said he believes a floor will soon be reached. "How much weaker can it get? Not much," he said.

Meanwhile, emerging markets like India and Thailand, are experiencing increases in commodity prices that have exerted inflationary pressures of their own, affecting those currencies.

Local importers such as Gurbakhshish Grewal, owner of India Spices and Music in Elk Grove are finding it difficult to adjust to commodity price hikes in India and soaring fuel costs at home.

What used to be $2,000 orders of cooking oil, rice and other store staples are now $3,000 or $4,000.

With diesel at $5 or more a gallon, his Bay Area suppliers say they have to justify the trip to Elk Grove. Complicating matters, he said, was a recent export ban in India on one of Grewal's key goods, basmati rice.

But to keep customers coming in, he has to hold the line on prices. He delays orders, figuring out what he needs and when.

"If I'm not making enough sales, my order gets smaller," he said.

Amid the bleak news for importers is a potential boon for U.S. exporters of goods and services, said Dion Dwyer, executive director of the Sacramento-based Northern California World Trade Center. A weaker dollar means the price of U.S. goods has become more attractive in the global marketplace, he said.

"We see the products we manufacture become more viable," Dwyer said. "Not only do we consume, but we have products for export."

Exports are an important part of the California economy, with more than $134 billion in goods leaving the state's ports in 2007, nearly 12 percent of the U.S. total, according to foreign trade statistics from the U.S. Census Bureau.

In addition, foreign-based companies are refocusing their attention on the United States, and Northern California in particular, Dwyer said.

"We have people coming to look at what we're doing. They're looking for partners within the Northern California region," he said.

Meanwhile, importers like Francisco Quintero of Rusticos la Villa, are redefining what they do while retaining their core business.

A furniture and pottery importer in a warehouse on Sacramento's Richards Boulevard, Quintero has been in the import business only since 2006 but noticed the roiling currency waters in 2007.

Since then, he has mostly moved away from importing, manufacturing the heavy, intricately carved wooden tables and chairs that fill his showroom on-site.

"In 2007, by May or June, we started seeing that costs were rising. There were different issues: costs, quality and, now, we can custom, too," he said, during a break at his sprawling 13,000-square-foot warehouse. "Because of the cost of everything, we can control quality and reduce costs, too."

But other local importers like Felicia Strati, whose midtown boutique of the same name is stocked with dresses, blouses, jewelry, shoes and handbags from France, Italy and Greece, are focusing on their business.

"I won't stop what I'm doing," Strati said. She means the Mediterranean buying trips that bring the latest European fashions to Sacramento. But she concedes an escalating euro abroad has been tough to reconcile here at home.

On her most recent buying trip in March, she paid as much as $1.64 to the dollar for her orders, she said. When she opened the storefront two years earlier in June 2006, the dollar was $1.25 to the euro.

"I was so lucky," Strati said sarcastically of her last trip. "If you consider that luck."

Absent luck, a storeowner has to adjust. Strati has had to raise prices to compensate for the higher European currency, satisfied for now with a smaller profit margin to get her goods on the shelves.

"You have to," she said. "I'm a business. I want to make money, but I understand where the economy is."

END OF ARTICLE

 

Alvina Lal, left, and Lani Beck browse through the merchandise at Zanzibar Trading Co. in midtown. Investors turning to silver and gold as hedges against a dropping dollar have forced jewelry costs higher, but dealers hesitate to raise prices because that might drive away their customers. Photo by Florence Low / flow@sacbee.com
Peruvian folk art pieces are among the exotic objects for sale at the Zanzibar Trading Co. in Sacramento. The U.S. dollar's weak performance against foreign currencies means importers are paying more for products and fuel. photo by Florence Low / flow@sacbee.com