Changes in China
Opens doors for U.S. manufacturers
August 20, 2010,
A worker inside O.W. Lee, one of the domestic m anufacturers that imports some components but assemble and finish in the U.S.
Kathy Juckett, CEO of Telescope Casual, which produces nearly all of its furniture lines at its factory in upstate New York, said she started noticing an evolution of the "buy American" sentiment late last year. By then, the company had conducted its first national shoppers survey in which 15% of respondents said "made in the U.S." was their most important purchasing factor. That number, she says, was too high to be just a patriotic sentiment.
"I think it showed that after several years of high unemployment, people are finally making the connection that we've been working for years to get them to make," she said. "When you buy Chinese products, you're replacing an American person's job. That's become a really important factor, because there isn't any part of the country that hasn't been affected by unemployment. Everyone has friends or neighbors who have lost their jobs."
Juckett knew she was really onto something this summer, when she saw sales increase significantly over last year. Telescope isn't the only one. Sales have also been strong for Suncoast Furniture and Casual Creations, which import components and assemble and finish furniture at their U.S. factories. Both were slammed with orders through Memorial Day.
Part of that has to do with the domestic economy finally coming out of its funk. But problems in China are also in play. Salary increases for the Chinese labor force and decreased capacity on shipping vessels have squeezed importers and retailers, who will have to pay a little more and wait longer for their shipments.
Rick Baker, national sales manager at Suncoast, has been dealing with Chinese manufacturers for about 20 years. Before he joined Suncoast, he ran a retail chain in Ohio that imported containers of furniture directly from overseas. Problems with China are nothing new, he said.
"I can't remember a year when there wasn't an issue with China," Baker said. "When I first shipped furniture from China 12 years ago, I'd order a container and not get it. I learned that I had to order five knowing I would just get two. That's just how you did business over there."
But this time, he admits that he is wary of what the recent labor unrest in China may mean in the long-term.
"When I was growing up, everything was made in Japan," Baker said. "Now, all they make is high-tech stuff. I think China is going through the same thing right now."
Scott Coogan, vice president of Casual Creations, agreed. "China needs to reinvent itself," he said. "Years ago, it was all about telephone-number quantity. China thrived and we thrived. The economy has changed drastically. The needs and wants of consumers have changed drastically. You're dealing with a more focused consumer who knows what she wants."
Serving that kind of consumer takes the kind of agility importers don't have. Domestic manufacturers are another story. "We're basically a custom business with the ability to supply retailers in a short period of time," Coogan said. "We have a large pantry of components, so our assembly processes are like taking a cake, icing it and decorating it and getting it out the door."
Production and delivery time at Casual Creations takes just two to three weeks total, a stark contrast to the time dealers and importers have to wait for containers. And that wait time may get longer. Last September, the UK's Daily Mail sent a reporter to the waters just off Singapore, where he documented a "ghost fleet" of empty vessels shipping companies had sequestered there.
"Freight lines have artificially created a demand by taking some of their ships out of circulation," Baker said, "and as a result, freight prices have doubled in the last year."
Meanwhile, vessels that are in use have less room, forcing importers and their customers to anticipate delays and think even further in advance about inventory.
"You don't know what fabric or finish will be hot several months down the road, so everyone guesses at what they think will be the best fit for their clients," said Casual Creations CEO Arthur James Jr.
Even so, few in the industry believe the climate here and in China will force the casual furnishings industry to fundamentally change.
Baker, for instance, isn't worried about the salary increases at Chinese factories, which will eventually impact the cost of the goods he and other companies are importing. A Chinese factory worker's income is still small relative to what U.S. workers earn. Even doubled salaries in China amount to just a few hundred U.S. dollars a month.
"In our business, being a little bit higher end, I'm sure [wage increases] have a long way to go before it gets to where I can't buy from China," said Brian Lee, president of O.W. Lee, which imports some components to assemble and finish its furniture in the United States. "Plus, I think they'll always remain aggressive. Chinese factories want the work and will do whatever it takes to get it."
Plus, companies have already invested too much time and effort in China to simply redirect their business to, say, Mexico.
"To set up a good working relationship with a factory in China takes so long, to switch that around would be very risky," Lee said.
Juckett said China's influence on the casual industry hasn't been all bad. In fact, she says it could be viewed as a positive for the future of domestic manufacturing.
"China has forced all of us to be very lean and reactive and flexible to meet the needs of our customers," she said. "Now that those of us who have survived have proven that it can be done, I'm hoping we'll see more American manufacturing. I hope people start to understand we need to be self sufficient. We do have the ingenuity and know-how and creativity to do this, but we have to do it in a way that people can afford it."
As always, whether that next evolution comes will depend on consumers' willingness to pay a little more for an American-made product. Right now, signs seem to indicate they will.
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