Consolidation likely for Chinese producers
By Thomas Russell -- Furniture Today, May 7, 2007
High Point — Rising raw materials and labor costs and other pricing issues are cutting into — or eliminating — the profits of many Chinese furniture makers.
Add to that the intense level of competition from other factories, and industry watchers say there is bound to be some level of consolidation soon.
"The thing that is really challenging the Chinese manufacturers is that the manufacturers have all this capacity," said Jack Richardson, president of American Drew, which sources from six plants in China.
Richardson said his company has taken some price increases over the past several months, which helps its sources share the cost burden. But ultimately, a factory's ability to continue doing business with his company or any other importer depends on how much of that cost it can absorb itself.
"It appears that there will be some factories that don't survive," Richardson said, noting that those with the best equipment and operations will thrive.
"It depends on the strength of the factory and what they are able to absorb, where they can take out costs."
Glenn Wakefield, president of case goods importer Largo International, agreed.
"You will see more consolidations or more people going out of business the next three to five years before things settle out," he said. "There are too many factories over there with excess production capacity and they need an outlet. Only the strong will survive."
Another key issue for manufacturers and importers alike is the threat of higher duties on bedroom furniture.
The U.S. government is now performing two separate administrative reviews of bedroom furniture shipments from China between June 2004 and December 2006. The results of those reviews will determine the sum total of what the importers of record end up paying on bedroom shipped to the U.S. market during those periods.
The effect on importers of record will depend on their ability to pay the retroactive duties. The Chinese factories slapped with higher duties also are likely to be affected because their import customers will look to other factories to produce their bedroom products. Those companies that can't weather that transition will have to close or sell off to other larger players with lower duties.
"The next biggest thing is what happens with the dumping rates," said Kevin O'Connor, president and CEO of Samson Marketing, which oversees case goods importers Legacy Classic and Universal Furniture. "Some of those rates will clearly put people out of business and some of the marketers over here will have to find other sources."
Another option for manufacturers now focusing on exports will be to sell directly to the Chinese market, a huge opportunity given the rise of the country's middle class. But for some, that could be easier said than done, particularly since it means developing different styling and scaling for products tailored to the Chinese consumer.
