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'THIS IS GOING TO BE AN EARTHQUAKE'Euros may transform Europe into a bargain hunter's dreamIn the Tuscan village of Fiesole, known for its ancient Roman amphitheater and deep red Chianti, shoppers are exploring Europe's financial future. Last spring, the town's banks exchanged lire for ersatz euro notes, urging citizens and shopkeepers to try out the new money. Local authorities wanted to see how the euro affected buying patterns. The result, says Luca Diamanti, who runs a downtown bar and grocery store, was a mass of timid shoppers. Although people were willing to carry the new currency, they spent it only on small items--nothing much bigger than a cappuccino or a pack of cigarettes. Diamanti, who changed his fake euros back into lire as soon as the experiment ended, was unimpressed. ''I leave changes to people who understand them,'' he says. That's a luxury he won't have for long. In a month, the lira, peseta, franc, and mark will technically be nothing more than denominations of the new currency--mathematical crutches for slow adapters. Even if consumers aren't yet using euro notes and coins, their bank accounts, retirement funds, and in many cases paychecks will be expressed in euros. So smart retailers are scheming to cash in on the new regime. As they gear up to take advantage of a true Continental market, they will change forever the face of buying and selling in Europe. Says Erin Anderson, a professor at INSEAD, a business school outside Paris: ''My sense is that this is going to be an earthquake.'' MERGER SPREE. The potential payoffs of this seismic event are immense. Over time, Europe could turn into a bargain hunter's paradise as currency transparency--created by a money whose value everyone understands--drives down prices of many European goods. More important, the euro will transform the shopping environment, as huge retail chains spread across the region unfettered by money differences. That could eventually unleash a U.S.-style consumer spending boom and give an economic boost to the entire world. Retailers see plenty to worry about. Already, a merger spree is under way, as the biggest among them reach across borders to build a Europewide presence. Greater scale should allow them to negotiate lower prices with manufacturers--and pass them on to consumers. The mergers also prepare Europe's big retailers to battle powerful newcomers, such as Wal-Mart Stores Inc. But the quest for bulk leaves smaller retailers, from grocery chains to corner cheese shops, quaking. Businesses of all sizes, meanwhile, are grappling with dual labeling. The old currency units won't disappear until mid-2002, and many consumers may use them till the last minute. But stores must be able to cater to more progressive shoppers, too. Retagging every item in the store is more than just a logistical hurdle. It also raises pricing questions. Take a German grocer whose goods are at eye-catching prices like 3.99 marks or 9.99 marks. Converting these amounts into equally attractive euro figures may involve price cuts that will eat into retailers' margins. FROZEN RATES. To make up for the losses, stores will probably nudge other prices up. But here they risk the wrath of suspicious shoppers. Fifty-year-old Edith Guetal, a Paris bank worker, shudders at the thought of euro pricing as she shops the grocery section at the Prisunic store on the Champs-Elysees. ''We've got to keep an eye out to make sure they don't use this change to raise prices,'' she says. The first big decision for retailers comes next month, when they must figure out whether to accept old currencies, euros, or both. McDonald's Corp., for example, plans to accept two or three European currencies at the fixed euro rates in its restaurants that lie near national borders. This means that harried cashiers in the German town of Aachen, near Belgium and France, will have to make fast change in three moneys for the cheeseburger special. In the past, businesses could impose their own inflated exchange rates, raking in extra cash for the impromptu bank service. But with the euro's strictly frozen rates, businesses must provide the most precise change possible. Nevertheless, retailers see the coming of the euro as an opportunity to win loyal, long-term customers by making the transition as easy as possible for shoppers. From German food chain Metro to Spanish department store El Corte Ingles, stores are posting informational signs and labels and distributing cartooned brochures to guide consumers through the change. They are also training employees to become on-the-spot euro consultants. In France, for example, some 300,000 retail workers have been pulled from their jobs to spend long hours playing a board game involving a slew of euro scenarios sponsored by the national retailers' federation. ''These people will have to be the ambassadors of the euro,'' says federation President Jerome Bedier. But for all their focus on the customer, retailers can ill afford to lose sight of competitors. Indeed, the biggest stores are already expanding their presence throughout Europe to exploit the scale of this newly seamless market. For many, mergers are giving them the muscle they need to push across borders. French retailer Carrefour paid $3.5 billion, a steep 35 times earnings, for French supermarket chain Comptoirs Modernes. And Cees van der Hoeven, chief executive of giant Dutch supermarket group Ahold, says he is scouting opportunities in Britain, France, Germany, and Italy. ''The euro is going to spur retail consolidation,'' predicts Amita Gulati, European retail analyst at Paribas Capital Markets Group in London. For a glimpse of the coming battle of the titans, retailers need look no further than Germany, where Wal-Mart, with 21 discount warehouses, has been making waves for a year. In its Karlsruhe store, with U.S.-style aisles that are wider than some local streets, the U.S. giant is teaching Germans the joys of discount shopping. Shelves abound with bargains, from Beaujolais Nouveau to Norwegian salmon. The euro will let Wal-Mart offer even more cheap goods from all over the European Monetary Union region--giving shoppers accustomed to conservative, regional markets a riot of diversity. To keep pace, European stores must do the same. ''In our history, there's a Before Wal-Mart and an After Wal-Mart,'' says Jean-Paul Font, a retail management consultant at Sema Group in Paris. WILD RIDE. Eventually, these greater choices could provoke a buying boom, predicts INSEAD's Anderson, as Europeans relax their nervous grip on savings and hunt for bargains. But initially, retailers could face a hiatus up to a year, as Europeans postpone big purchases while they wrestle with the new money. Andersen Consulting tracked French expatriates recently arrived in the U.S. and found that buying took a few months to ramp up. ''Their consumption was down, because at first they didn't really understand the price,'' says Valerie Simonnet, an Andersen consultant in Paris. Europe's currency switch promises to be a wild ride. But between now and the appearance of euro bills and notes in three years, Europeans have plenty of opportunities to practice. Chip-bearing ''smart'' cards denominated in euros will make their appearance quickly, allowing shoppers to pay euros for baguettes and newspapers. For bigger euro buys, growing numbers of Europeans are likely to shop the euro zone via the Internet. Indeed, by the time the marks, francs, and lire vanish for good in 2002, the euro revolution will have already worked much of its magic in the marketplace.
By Stephen Baker and Inka Resch in Paris, with William Echikson in Brussels and Monica Larner in Rome RELATED ITEMS
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Updated Dec. 3, 1998 by bwwebmaster
Copyright 1998, by The McGraw-Hill Companies Inc. All rights reserved.
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