Soaring Sterling: Fearful fashion groups predict collapse

FASHION groups are worried that the combination of the strong pound and financial turmoil in the Far East could bring some of the industry's top names to the brink of collapse.

Many have been caught by the double whammy of the rising UK currency, which is making their goods more expensive in export markets, and the virtual disintegration of the Far Eastern luxury goods sector. Countries such as Japan, Singapore and Malaysia have traditionally proved a lucrative source of income for fashion houses and luxury goods companies, but most Far Eastern consumers can no longer afford the prices.

One director of a top UK fashion group says: "At the top (luxury) end I would say there is risk of collapse is quite high." Another UK retailer said: "I would not be surprised to see a top fashion name - European or American - fall victim to all this."

He added that selling luxury goods in the Far East was next to impossible. "The top end of the market has just disappeared. It has almost got to the stage where it doesn't matter how much you charge for things. People aren't going to buy them anyway."

The deteriorating trading conditions have already caused some top UK houses severe problems. Mulberry, the British luxury goods group which makes luggage and filofaxes, has issued a series of profits warnings because its exports to markets such as Japan have been hit so hard. Burberry, famous for its raincoats and trademark checked scarves, has been another victim. Its sales in the Far East have been affected while sales in its UK shops have been hit by lower tourist spending because the strong currency has made its merchandise so expensive.

The companies hit hardest are those that manufacture in the UK and export to European and Far Eastern markets. Firms that buy goods from the Far East at least get the benefit of the strong pound in reverse. They are able to source their goods more cheaply in the Far East because the UK currency now has so much more buying power. Mulberry recently decided to close a factory in Somerset and move more manufacturing to European markets such as Spain.