Strong Dollar, Weak Retailers

International exposure is hurting right now, but will pay off later.

For years, retailers embraced global expansion as a silver bullet for growth. While American retail sales slowly chugged along, executives feared missing out on what seemed like ever-rising wealth in China, Brazil and other growing economies.

But lately, store chains that resisted the urge to expand internationally have been looking smart. 

Flying High

U.S. Dollar Index

Source: Bloomberg

That's because a rising U.S. dollar has seared many American retailers. The greenback's surge makes diamond rings and cashmere sweaters more expensive for shoppers outside of the U.S. The foreign exchange impact hurts companies that earn sales abroad but account for them in the U.S. And tourists who once planned trips to America in search of a steal on Michael Kors purses or Abercrombie and Fitch sweatshirts are cutting back on shopping when they visit.

From Abercrombie and Foot Locker to Perry Ellis and Burberry, discussions of the strong-dollar hit have surfaced on dozens of earnings transcripts this quarter. 

Earlier this month, Macy's shares fell the most in more than seven years after it cut its annual profit forecast. Partially to blame: a 1.5 percent sales impact from lower tourist sales, using purchases made with international credit cards as a proxy.

In reporting disappointing third quarter results on Tuesday, Tiffany said it expects earnings per share to fall by 5 percent to 10 percent this year. The luxury jeweler -- which last year brought in 52 percent of its sales from outside the Americas, up from 40 percent a decade ago -- blamed the strengthening dollar and flagging tourist sales. Tiffany shares are down nearly 30 percent this year. 


More than half of Tiffany sales are from outside the U.S.

Source: Bloomberg

Meanwhile, retailers with less exposure to international markets seem to be hanging in there. It's been a bright spot for some companies in the battered teen retail sector, which continues to struggle as younger consumers shop elsewhere.

Sales at Abercrombie and Fitch, 35 percent of which are outside the U.S., are still faltering. But things seem to be looking up for American Eagle and Express, which have limited international exposure. American Eagle has managed to post three straight quarters of sales growth at established stores, as denim and other on-trend merchandise resonates with customers. Express, which has reported two straight quarters of positive sales growth, is expected to book 5 percent growth in third-quarter comparable sales when it reports earnings next month. 

Other retailers that stand to benefit from a home-turf advantage include Buckle, Francesca's Collection, Ulta, and Chico's, which all have at least 98 percent of revenue coming from the U.S., according to estimates from Nomura's Simeon Siegel. 

That benefit won't last forever. While currency pain will hurt exposed retailers as the Fed raises interest rates and the dollar rises, currency values are fickle and the retail game is a long one.

U.S. consumer confidence, which in November fell to the lowest point in more than a year, is a reminder that companies currently benefiting from a lack of foreign exposure will end up taking a beating when the American consumer turns, spending slows, and U.S.-only retailers have nowhere else to go to for growth.

In the meantime, it's smart for retailers like Tiffany -- which was founded nearly 180 years ago as a stationary and fancy goods store in New York City -- to manage their businesses for the next generation of global consumer growth. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the author of this story:
    Shelly Banjo in New York at

    To contact the editor responsible for this story:
    Mark Gongloff at

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