Dealing With The Dollar – The Manufacturers

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The fall of the U.S. dollar has made Small World Kids Inc. act like, well, a kid in a candy store.


The 40-year-old business manufactures 750 toys under the brands IQ Baby, IQ Preschool, Ryan’s Room, Puzzibilities and Neurosmith. And while sales to U.S. retailers account for more than 75 percent of Small World’s business, trade with Europe and South America is providing a nice boost, thanks to the dollar’s fall.


With its goods, all manufactured in China, becoming less expensive for European buyers, sales volume is up. Debra Fine, Small World’s chief executive, said buying the toys at a relative discount gives overseas retailers more options as they market to consumers.


Retailers in Europe have used the spread to their benefit. They can offer the product at the suggested retail price, which increases profit margins as the strong euro allows them to buy more goods for the same price. Or they can use the spread to discount the retail price, drawing in customers while not cutting their margins as significantly as they might have when the euro bought less.


Small World posted revenues of $25.9 million in 2002 and 2003 and Fine said it was on a “strong growth path” for 2004.


The company is also benefiting from a decision made a decade ago to shift manufacturing operations from England and Germany to China.


“We used to manufacture in Europe,” said Fine, “but we decided to move to China because we would lose money when the dollar was weak. It’s very positive for (Europeans) because it’s like they are getting a 30 percent discount.”


John Nelson, Small World’s chief operating officer, stresses that the company is not relying on currency fluctuations to be the engine of revenue growth. “We’re in the (business) of designing and manufacturing toys,” he said. “The last thing we want to do is manage foreign currency.”


The company is currently negotiating with 10 major distributors in China, Europe and South America to expand its sales network. Having bought out Long Beach-based Neurosmith LLC last year, it’s also in an acquisition mode, though the weak dollar means it will stay on this side of the ocean in those efforts.


“For us to go and acquire a company in Europe, it’s probably not a good time,” said Fine. “We would probably overpay.”

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