Falling Dollar Pinches Small Businesses

The sliding currency hurts importers and others.

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When the dollar hit a 12-year low against the yen and an all-time low against the euro in March, it wasn't just the titans of international trade who took notice. Small businesses that deal in imported products—be it through direct retail or marketing to other retailers—have had much to fear from the dollar's slide in value.

Small businesses sometimes distinguish themselves from larger competitors by offering exotic and specialized products that give customers something they can't find elsewhere. Importing goods is one way to accomplish that. But increasingly, the weak dollar is driving up the prices of imports to equally exotic levels.

Just ask Dave Alexander, owner of the Brickskeller, a Washington, D.C., bar famous for holding a spot in the Guinness Book of World Records for the "largest selection of commercially available beers." Open the Brickskeller's menu, and it's almost difficult to find a country that doesn't have a brew represented, many at prices below those of even common domestic beers sold at other area bars.

But Alexander says the prices of many of his imported beers have surged in recent months, in great part because of the dollar's weakness against the euro. That can spell trouble for a selection that is heavy on popular German and Belgian brews. "It's actually a serious problem," Alexander says. "We've never tried to gouge prices, [but] unfortunately, operating expenses keep going up." Alexander says he is trying to hold the line on prices to maintain the Brickskeller's image: "We're very hesitant to raise prices. Beer is the drink of the common man."

Another small-business owner feeling the brunt of the dollar's fall is David Frucht, owner of Ton Savon, which imports high-quality bath products made in France. Frucht sells to mass retailers like Trader Joe's. In the past year, he says, his costs have gone up 50 percent. That is making it difficult for him to keep selling to his clients, who retail at low-price targets. Frucht has decided to let the costs cut into his margins rather than raise prices and risk selling much less. He's hoping that Ton Savon will last long enough for the dollar to turn around.

But is waiting a good-enough strategy? Laurel Delaney, who consults with small businesses looking to go international and runs the Global Small Business Blog, says quick action is necessary if you're being squeezed by the dollar. First, she says, you need to retool your business strategy to make sure you're not totally dependent on customers who won't accept a price increase. Time is of the essence, because a new strategy can't be implemented overnight.

Second, Delaney says, don't be afraid to ask suppliers to bring down their prices for a bit to give you a break. They may say no, but if you've developed good relationships with them, Delaney says, you have a chance. "I'm not talking fly by night. I'm talking long-term deep, fruitful, very rewarding relationships that will sustain the business," she says.

That's what Barbara Keating plans to do. She owns Computer Frontiers, which does contract information-technology work for U.S. companies in countries like Ghana and South Africa. Her business has come under stress recently because clients pay her in dollars, but she pays the people she employs in Africa in local currencies, which have gained against the dollar. Keating says she is trying to renegotiate her contracts with clients, but having to do that is unfamiliar. "It's a new reality for us that we've always been on the strong side of the game," she says. "We've never seen a fluctuation like this." Keating can take some solace at least in knowing she's not alone.