Fairmont's Tsai Focusing on U.S. Production
Thomas Russell -- Furniture Today, June 2, 2011
HIGH POINT - Earlier this year, case goods and upholstery manufacturer Fairmont Designs bought a former Thomasville upholstery plant in Hickory, N.C. The company will use the 200,000-plus-square-foot operation to make fully upholstered sectionals, sofas, loveseats and chairs.
It was the second major upholstery initiative in recent years for Fairmont, which in 2008 acquired California upholstery manufacturer Guildcraft. The California plant produces about 200 pieces a day of finished goods and the company aims to reach a similar capacity in North Carolina.
Meanwhile, Fairmont continues to be a case goods resource in the residential and contract/hospitality markets, with most of those goods coming from its plants in China. Some of the wood furniture eventually could be produced in U.S. facilities as well, particularly in light of recent changes in Asia.
In an interview with Furniture/Today, company Chairman George Tsai discussed the outlook for his business and how he plans to approach manufacturing and selling in the United States and China. Here is a brief summary of the discussion.
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"I think made in America is going to be very important.... I am not ruling out the possibility of the days that I will send my CNC machines from China to Hickory and get back into case goods."
George Tsai, Fairmont Designs
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Furniture/Today: While you maintain your China production, your company is making serious steps to become a U.S. manufacturer. Why now?
George Tsai: China had a good run from 2000 to 2007. We were very successful in those years because China was the name of the game, particularly with low labor costs. Now, the cost of oil will impact the cost of ocean freight and the cost of labor in China will go up 20% a year.... It will double in four to five years. In addition to labor cost increases, it is increasingly difficult to find workers in China.
F/T: What about the currency? Hasn't the value of the yuan in relation to the dollar made the cost of doing business a lot less expensive out of China?
Tsai: The currency is now (in late March) 6.56 RMB to the dollar. By the end of the year it will be 6.2 and by the end of 2012, rates will be below six (making Chinese goods more expensive in U.S. dollars). All of that is not helping the case goods business or the upholstery business. I think made in America is going to be very important.... I am not ruling out the possibility of the days that I will send my CNC machines from China to Hickory and get back into case goods.
F/T: Even with recent wage hikes in China, U.S. labor still is much more expensive. What type of value can "U.S.-made" bring to the equation?
Tsai: Since 2000, we really have had a two-pronged business strategy in home and contract/hospitality furniture. The domestic business model will be about customization. That is where you can get extra money and that is where you can see added value. China and Vietnam will not be the answer to customization.
F/T: Any other benefits to the U.S. production model?
Tsai: If a hotel is opening in 30 days and it takes 30 days for ocean transit, the only place to make it is close to the marketplace. Vietnam and China cannot handle that type of business because of delivery time constraints.
F/T: So how does Asia tie into this equation? We assume you won't be closing your China case goods operations anytime soon.
Tsai: We will put China and Vietnam to proper use. They are good with parts and things like chair frames. We will continue to bring that into the U.S. and custom finish it the way our customers want us to. I see a demand for more customization in both residential and in health care and hospitality furniture.
F/T: Your company was hit with a 43.25% retroactive antidumping duty for 2008 wood bedroom furniture shipments from your China production facilities. How is that affecting your business?
Tsai: We are increasing our non-bedroom business and are shifting our bedroom to other countries. We have shifted bedroom to Vietnam and are limiting our sourcing to one or two factories.... Ultimately, we may have to buy a factory in Vietnam.
F/T: What are the financial implications of this retroactive duty?
Tsai: As far as the retroactive duty is concerned, the normal procedure is you file an appeal to the Court of International Trade. You fight it and it takes time to fight it. We have a legitimate appeal and we will see how it comes out. If we need to pay the $8 million in retroactive duties, then I will pay it.
F/T: What are your thoughts about U.S. furniture companies selling into the China market? How do you see this playing out?
Tsai: In terms of styling, what works in the U.S. may not work in China. In China, you have an increasing percentage of people that are in the middle class and they are in pursuit of more affluence, but the style (preferences) are more glaring and ostentatious. Anyone who wants to expand in China needs to invest a lot of time, money and a lot of people. It is more work than just being a wholesaler or distributor in the U.S. If you are a retailer, you have to study the Chinese market and understand Chinese consumers.
F/T: What about Fairmont? Are you selling to the Chinese market?
Tsai: We have 120 stores and most are operated as franchises, but we do operate our own Shanghai and Beijing stores. Right now 15% to 20% of our business is in China. I'd like to increase that to 40% to 45%.
F/T: Any final thoughts?
Tsai: I am happy to see more American companies paying attention to the potential of that (China) market. But being an American citizen - we have been in business 26 years and I have been here since 1973 ... this is where I want to hang my hat in terms of building my business base. That has priority over my China business.
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