Imports pound UK companies

WHEN Italy's Benetton Group chose London for its flagship megastore in September 1996, it was persuaded by the same reasons that prompted Newsweek to call London "The World's Coolest City" in November that year.

The Italian clothing company knew that Britain's economic revival had made its capital a hot spot for fashion, music, clubs and cuisine. What it didn't know was that Britain's currency was on the brink of a run that would make Benetton's earnings from its Oxford Circus store even hotter.

The pound's 25 per cent surge against a trade-weighted basket of currencies since August 1996 means UK companies are taking a beating at home, with foreign companies able to undercut them on price.

"My advantage in the UK is coming from the value of the pound," said Giancarlo Bottini, chief financial officer at Benetton. British sales accounted for 7 per cent of group revenue last year, surpassing the US's 5 per cent share. "We've become more competitive. I can get more revenue without raising prices."

Benetton's ability to keep prices the same even as inflation rises is the boon of the strong pound. Some importers, perhaps less entrenched than Benetton in the hearts of shoppers, have gone so far as to cut prices. Italian importers sold 45 per cent more women's clothing in the UK in the first half of 1997 than in the first half of 1996, according to the Italian Trade Centre. Prices came down as theaverage cost of an item of women's clothing exported to the UK fell to pounds 50 from pounds 70.

Fashion retailers aren't the only companies earning more in the UK. There's evidence across Europe that importers of everything from office furniture to cars are enjoying the same boost.

Since summer, 1996 sterling has risen 25 per cent against the lira, 28.5 per cent against the German mark and French franc and 30 per cent against the peseta. The reason: concern about a weak European single currency and a thriving UK economy.

The stronger pound could easily have been a deterrent to foreign companies, given the increased costs of setting up shop. London's new cultural chic, however, has made it worth their while. "London is hot, as it was in the days of Twiggy and Carnaby Street," said Glynn Alwyn-Jones, chairman of the International Fashion Federation. "The opportunity foreign companies obtain by opening a store here is not only a domestic opportunity, it's a world opportunity."

Official figures on overall UK trade with other European Union countries tell the tale. Imports rose 7.7 per cent in August to October 1997 over the same period in 1996. Prices, meanwhile, fell 7.3 per cent.

Dutch office furniture maker Royal Ahrend cited the guilder's 31 per cent rise against the pound since mid-1996 as the driving force for an expected 24 per cent rise in 1997 net profits. The company expects to use the foothold it has gained from sterling strength to build a business that will weather any decline in the pound.

It is also happening in the car market. The number of European-made cars sold into the UK last year rose by more than 3,000 on 1996, while sales of British-made cars fell by a similar amount, says the Society of Motor Manufacturers and Traders. Car importers increased their share of the UK market to 66.2 per cent from 62 per cent in 1996. Each of the three large UK car companies, Ford, Vauxhall and Rover Group, lost market share.

While importers gained from the pound's rise almost immediately, the harm to UK manufacturers took more than a year to show up. UK companies masked the problem by cutting margins and taking advantage of lower prices on imported raw materials.

"It catches up with them eventually," said Nish Dattani, an economist at the CBI. "It's happened only recently, but now we're seeing the signs of import penetration coming through."

Mr Dattani said the first sign came last August in the CBI's quarterly retail survey. Among retailers the CBI questioned, 18 per cent more said they were stocking more imports than the quarter before; a trend that continued in the November survey.

The only way to cope, UK retailers say, is to act like importers and manufacture products outside Britain.

"We believe the effect from importers will be dramatic," said Roger Saul, chief executive at clothing retailer Mulberry Group. "If the pound stays strong for another year, UK companies will have to move their production abroad or you're going to see them going under."

Mulberry is poised to shift production from Britain to factories in Italy and elsewhere in southern Europe, where it has already done test runs in preparation, Mr Saul said. That's a threat to the company's 400 employees in Somerset.

Mulberry could find itself becoming a neighbour of Benetton - and a new exporter to the world's hottest city.

Copyright: IOS & Bloomberg

Start your day with The Independent, sign up for daily news emails
News
US comedian Bill Mahr
people
Voices
Winston Churchill, then prime minister, outside No 10 in June 1943
voicesA C Benson called him 'a horrid little fellow', George Orwell would have shot him, but what a giant he seems now, says DJ Taylor
Sport
football
News
Rob Lowe
peopleRob Lowe hits out at Obama's snub of Benjamin Netanyahu
PROMOTED VIDEO
News
Davies (let) says: 'Everybody thought we were having an affair. It was never true!'
people'Our friendship flourished online. You can share some very revelatory moments at four in the morning…'
Arts and Entertainment
Over their 20 years, the band has built a community of dedicated followers the world over
music
News
Staff assemble outside the old City Road offices in London
mediaThe stories, the writers and the changes over the last quarter of a century at Britain's youngest paper
Life and Style
The Oliver twins, Philip and Andrew, at work creating the 'Dizzy' arcade-adventure games in 1988
techDocumentary looks back at origins of the computer-games industry
Arts and Entertainment
Krall says: 'My hero player-singer is Elton John I used to listen to him as a child, every single record
music
News
Friends for life … some professionals think loneliness is more worrying than obesity
scienceSocial contact is good for our sense of wellbeing - but it's a myth that loneliness kills, say researchers
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Arts and Entertainment
The Wu-Tang Clan will sell only one copy of their album Once Upon A Time In Shaolin
musicWu-Tang Clan and The Sexual Objects offer fans a chance to own only copies of their latest albums
News
i100
Environment
Number so freshwater mussels in Cumbria have plummeted from up to three million in the 20th century to 500,000
environment
Life and Style
Models – and musicians – on the catwalk in Dior Homme for the men’s 2015/16 fashion show in Paris
fashionAt this season's Paris shows, various labels played with the city boys' favourite
News
i100
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Tax Assistant

Negotiable: Recruitment Genius: A Tax Assistant is required to join a leading ...

Recruitment Genius: Outbound Sales Executive - OTE £25,000

£16000 - £25000 per annum: Recruitment Genius: This is an exciting opportunity...

Ashdown Group: Java Developer / J2EE Developer - Watford - £45,000 - £47,000

£45000 - £47000 per annum + bonus + benefits: Ashdown Group: Java Developer / ...

Ashdown Group: Marketing Product Manager - (Financial Services) - SW London

£35000 - £38000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

Day In a Page

Iraq invasion 2003: The bloody warnings six wise men gave to Tony Blair as he prepared to launch poorly planned campaign

What the six wise men told Tony Blair

Months before the invasion of Iraq in 2003, experts sought to warn the PM about his plans. Here, four of them recall that day
25 years of The Independent on Sunday: The stories, the writers and the changes over the last quarter of a century

25 years of The Independent on Sunday

The stories, the writers and the changes over the last quarter of a century
Homeless Veterans appeal: 'Really caring is a dangerous emotion in this kind of work'

Homeless Veterans appeal

As head of The Soldiers' Charity, Martin Rutledge has to temper compassion with realism. He tells Chris Green how his Army career prepared him
Wu-Tang Clan and The Sexual Objects offer fans a chance to own the only copies of their latest albums

Smash hit go under the hammer

It's nice to pick up a new record once in a while, but the purchasers of two latest releases can go a step further - by buying the only copy
Geeks who rocked the world: Documentary looks back at origins of the computer-games industry

The geeks who rocked the world

A new documentary looks back at origins of the computer-games industry
Belle & Sebastian interview: Stuart Murdoch reveals how the band is taking a new direction

Belle & Sebastian is taking a new direction

Twenty years ago, Belle & Sebastian was a fey indie band from Glasgow. It still is – except today, as prime mover Stuart Murdoch admits, it has a global cult following, from Hollywood to South Korea
America: Land of the free, home of the political dynasty

America: Land of the free, home of the political dynasty

These days in the US things are pretty much stuck where they are, both in politics and society at large, says Rupert Cornwell
A graphic history of US civil rights – in comic book form

A graphic history of US civil rights – in comic book form

A veteran of the Fifties campaigns is inspiring a new generation of activists
Winston Churchill: the enigma of a British hero

Winston Churchill: the enigma of a British hero

A C Benson called him 'a horrid little fellow', George Orwell would have shot him, but what a giant he seems now, says DJ Taylor
Growing mussels: Precious freshwater shellfish are thriving in a unique green project

Growing mussels

Precious freshwater shellfish are thriving in a unique green project
Diana Krall: The jazz singer on being friends with Elton John, outer space and skiing in Dubai

Diana Krall interview

The jazz singer on being friends with Elton John, outer space and skiing in Dubai
Pinstriped for action: A glimpse of what the very rich man will be wearing this winter

Pinstriped for action

A glimpse of what the very rich man will be wearing this winter
Russell T Davies & Ben Cook: 'Our friendship flourished online. You can share some very revelatory moments at four in the morning…'

Russell T Davies & Ben Cook: How we met

'Our friendship flourished online. You can share some very revelatory moments at four in the morning…'
Bill Granger recipes: Our chef serves up his favourite Japanese dishes

Bill Granger's Japanese recipes

Stock up on mirin, soy and miso and you have the makings of everyday Japanese cuisine
Michael Calvin: How we need more Eric Cantonas to knock some sense into us

Michael Calvin's Last Word

How we need more Eric Cantonas to knock some sense into us