Yuan revaluation to affect jewelry, clothing
U.S. retailers, including Wal-Mart Stores Inc., Gap Inc. and Chico’s FAS Inc., are increasing purchases of inexpensive clothing and jewelry from India as they brace for rising costs when China, their biggest overseas supplier, revalues its currency.
Wal-Mart, the world’s largest retailer, is boosting purchases from India by 30 percent to $1.5 billion this year. The Bentonville, Ark.-based chain has an 86-employee purchasing office in Bangalore, India, from which “we could export a lot more,” Wal-Mart International Chief Executive John Menzer said during a conference in New York on June 13.
Retailers that bought about $65 billion in Chinese goods last year are turning to India because the anticipated yuan revaluation may increase their costs by 10 percent over two years, said Ken Mark, managing director of Martello Group in London, Ontario,.
“Retailers could shift the fall season to India,” said Norbert Ore, committee chairman of the Tempe, Ariz.-based Institute for Supply Management, the world’s largest association of purchasing managers. “We’ve gotten into a virtual world where buyers can quickly move to the lower-cost country,” he said. “If you see a shift in the yuan, you are going to have some impact.”
The United States is pressing China to change its decade-old policy of fixing the yuan at about 8.3 to the dollar to reduce the flood of low-price goods into the United States.
Federal Reserve Chairman Alan Greenspan on June 7 said a revaluation of the Chinese yuan is “something that I’m certain they will take on reasonably soon.” On June 23, he said such a currency change won’t increase U.S. manufacturing “significantly” and would “likely redirect trade within Asia.”
Chinese Prime Minister Wen Jiabao said June 26 that his country needed more time before it could free the yuan from the dollar.
“A great deal of preparation is still needed until we have favorable conditions,” Mr. Wen said in his opening speech at the meeting of European Union and Asian finance ministers in the Chinese coastal city of Tianjin.
Retailers are also expanding purchases in China this year, in part to support an expansion of retail stores. Wal-Mart, which operated 45 stores in China on April 30, plans to add 15 locations this year in the nation.
Wal-Mart bought $18 billion in apparel and other goods from China last year, an increase from $10 billion in 2001, making it the country’s seventh-largest export trading partner ahead of Britain. A yuan revaluation may be “more burdensome for Wal-Mart than other retailers,” said Jon Jacobs, fixed-income analyst at Cantor Fitzgerald LP in New York. “Wal-Mart has based their positioning on being the lowest-price vendor.”
Indian factories may gear up to produce up to $5 billion in goods for Wal-Mart over the next three years, said Nirav Sheth, deputy head of research at Brics Securities Ltd. in Bombay.
Gap Inc., the largest U.S. clothing chain, has increased purchases in India, said Vivek Hinduja, chief operating officer for marketing for Gokaldas Exports Ltd., an apparel supplier in Bangalore. Gap, its largest customer, makes up more than a third of sales.
Chico’s, which operates 700 women’s apparel stores, said it gets about 12 percent of its apparel from India and almost half from China.