Deals on Chinese goods getting harder to find
Thomas Russell, Associate Editor -- Furniture Today, March 31, 2008
For years, Chinese furniture manufacturers did just about anything they could to gain business from the United States. To this day, some of the same companies still talk about the U.S. as if it were the key to their success.
But something has changed in the realm of Chinese manufacturing. For the past couple of years, furniture producers have battled higher costs. Rising expenses of items ranging from raw materials to fuel to labor costs — they're now having to factor in overtime and more time off — are creating severe pressure on factories.
Consider too that the margins have been eroded by the falling value of the dollar against China's yuan, and by the reduction and proposed elimination of China's value added tax rebate, which some factories have relied upon to achieve annual profits.
These and other cost factors were evident at furniture shows I visited this month in four cities in China. The most obvious change I noticed from past markets was the large number of Chinese and other Asian buyers flooding the markets. Granted, some of these were probably consumers who obtained day passes. But one thing was clear: The Chinese retailer and consumer have a passion for furniture.
True, there were U.S. buyers at the shows, but their presence appeared diminished. This had another important implication for the U.S. market. Before, U.S. buyers had plenty of leverage to say no to price increases and the factories relented. Now, if those buyers say no, the factories can turn that business away. And many have already done that amidst the growth of sales to Europe and the domestic China market, which are said to not be as sensitive to price increases as their U.S. counterparts.
This scenario presents difficulties for U.S. buyers, particularly during our ongoing economic slowdown. Buyers may have to search harder for the best deals, and finding those deals could prove as elusive as finding gas below $3 a gallon.
To continue doing business in China, buyers have a few key options. They could find a cheaper source factory and risk quality issues. Or they could stay with the current manufacturer and ask them to take something out of the product. Or they can ask the manufacturer to add value to help compensate for the price increase.
By adding value, they could enhance the product in the mind of the consumer and thus make furniture less a commodity and more of a functional piece of quality craftsmanship. As some furniture importers have already found, that might just be the key to boosting sales and the industry's image as we prepare for our own economic turnaround.
