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Will the dollar burst the bubble?

Recently, much debate among pipe collectors has focused on prices. Is the high-grade bubble about to burst? One particular point of interest has been the effect of the dollar slump - which, from an American point of view, is causing price rises of up to 25 percent on European pipes.

Hobbyists fear an OK Coral for Scandinavians at this season's shows in the US, some predicting that the famous Danes will fly back with suitcases full of unsold exhibits. Others expect a comeback by the more affordable Italians, a boom for American carvers, a year of disappointing sales for everyone - or a general lowering of prices.

Strangely, the business itself takes a far more laid-back view of its immediate future. Instead of slashing prices to accommodate American customers, some European makers appear to be targeting the 'ultra-zone' more frequently than before - Teddy Knudsen and Kent Rasmussen among them. Likewise, neither European nor American dealers seem particularly worried, despite conceding the existence of changed parameters.

Sykes Wilford (www.smokingpipes.com) takes conditions philosophically: "Larger companies in larger industries hedge against currency fluctuations by buying and selling derivatives - in this case, currency futures - and therefore keep pricing relatively stable to the end consumer. It doesn't work in the long-term, but helps to stabilise the situation in the near-term. Given how small the pipe world is, though, this would be a relatively expensive and complex way to solve this problem. Businesses go through these currency cycles all the time. It's just particularly obvious to us in the pipe world right now, because almost all high grade pipes are produced in Europe and because of how wild the swing was."

Stefan Rajek of Germany's www.estatepipes.de says that price fluctuation doesn't appear to be a prime issue for buyers of premium pipes: "For most of our foreign high-grade customers, currency rates are a secondary consideration, because we are talking about pipes they've fallen in love with. Gritting their teeth, they take currency fluctuations in their stride to make sure they get the coveted piece. There's hardly an alternative - if you wanted to speculate by waiting for a better currency rate, you'd risk losing the pipe in the meantime."

Fellow German Heiko Jahr (www.pfeifenantiquariat.de) agrees that the situation is less dire than casual observers might expect. Though he cautions that European carvers who have negotiated fixed exchange rates with American importers may experience some difficulties, he sees part of the problem in the fact that the US market was "a bit saturated" anyway.

For his own business, Heiko takes a relaxed stance: "Basically, it's a pretty straightforward affair. If prices rise for certain customers due to currency developments, those customers start to exercise more restraint. However, our own firm largely specialises in estate high grades. Prior to the currency swing, the prices of American vendors were significantly higher than ours. Now, they work out to about the same."

"Not as bad as it initially seems"

In America, Sykes Wilford's worry are rising import prices for European and Japanese pipes. He admits that the situation on the currency market is negative for overall business, but points at mitigating circumstances: "Yes, on a fundamental level, the changes in currency values should result in making American makers relatively more attractive when compared to European makers. As someone who imports European and Japanese pipes, this is likely to hurt my business some. However, I am hedged somewhat since I do have overseas customers. Sales overseas have increased because I have become a relatively less expensive place for overseas customers to shop. Those increases help to off-set the increased costs associated with importing pipes into the United States. It's not quite a wash, but it's not as bad as it initially seems."

It's an ill wind that blows nobody any good. A more hesitant approach by American buyers might actually be what the European collectors' scene is looking for - popular Old World feeling being that carvers whose work crosses the pond often lose touch with European price standards (usually significantly lower than those in the US). That said, even if this inflationary mechanism is currently breaking down, other price-hiking factors remain in place. It's fairly easy to see that several Scandinavian carvers have been raising their sights recently, apparently eager to join the ultra-price league just beneath Bo Nordh.

Is their timing lousy or elegant? "I'm not sure their plans will work, but I don't think they're simply being naïve," says one German collector. "They realise that the current market for normal high grades involves tight calculation. At the moment, the only way to boost income is to do it radically. You have to be perceived in a class above other makers, even above other high-graders."

One group with a chance of gaining ground due to the currency situation are America's own carvers. Not only are they likely to win a bigger slice of their domestic market - some have hopes of hitting Europe, too. In the past, US makers have been slow to try this, and European collectors equally reluctant to show much interest. One of the main hurdles has been a lack of retail outlets for American pipes in Europe itself.

Now, the fact that American high grades are becoming cheaper for European buyers has not escaped vendors like Heiko Jahr, who says he'll be shopping for new material at the pending Chicago pipe show. "I'll be taking a good look at which American makers suit our style and which we might be able to present. First contacts have already been established, and I'm expecting to be offering American pipes by the end of May."

(April 1, 2004)

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