Vietnam Wage Increase Could Affect Pricing
Thomas Russell -- Furniture Today, September 8, 2011
HIGH POINT - Importers that source furniture from Vietnam say that rising wages and other cost factors could affect pricing this fall.
The issue stems from the Vietnamese government's attempts to balance rising inflation and low wages among the country's working class. Double-digit inflation, in fact, was a key reason behind the government's plans to raise the minimum wage between 29% and 48% by early October.
While some manufacturers already may be paying over the minimum wage, inflationary issues could still prompt them to raise wages in an effort to keep production workers.
Harvey Dondero, CEO of high-end case goods producer Theodore Alexander, said his company pays well beyond the minimum wage for entry level employees. However, he said the wage issue and other cost factors will affect prices, he said.
"The simple answer is that with double digit inflation in Vietnam and material costs going up, a manufacturer has no choice but to raise prices, as unfortunate as the timing is in view of macro events impacting the industry," he said noting that Theodore Alexander is having a "small" price increase effective Sept. 1.
He added that the furniture industry has to pay production workers and professional staff competitive wages to retain them.
"As the Vietnam economy grows, the need for skills such as finance and IT are in great demand," he said.
Richard Tomkins, vice president of sales and marketing for Cresent Fine Furniture, said his company got a relatively small price increase about two months ago from Vietnam, where it sources bedroom. He said Cresent may pass some of that increase along to retailers this fall, but said it is too early to offer specifics.
"We are definitely seeing inflationary pressures at work in Vietnam - there is no question," he said.
He added that wage increases in Vietnam have "definitely made it less competitive, but we hear that Chinese wage pressures have been even stronger."
In China, a typical furniture production worker is said to earn $120 to more than $200 a month, compared with the estimated $65 to $130 a month in Vietnam. Combined with other cost factors, such as antidumping duties on Chinese-made wooden bedroom furniture, that makes Vietnam a less expensive alternative to China, particularly in bedroom.
According to a report by Agence France-Presse, the new minimum wage in Vietnam will be around $95 per month.
Some importers say that the minimum wage increases won't affect labor costs in their sourcing offices or distribution centers, which already pay much higher than the minimum wage.
"We are probably three times what the minimum wage is for foreign companies in our sourcing offices," said Magnussen Home CEO Richard Magnussen.
But Magnussen and others who source out of Vietnam are still keeping an eye on labor costs at the factories they source from. While many factories his company deals with also pay more than the minimum, conversations Magnussen and his associates have had with factory owners indicated they will still have to pay a 12% to 14% more to meet the new wage requirements.
He said this won't result in a price increase for Magnussen in the fall - his company already raised prices on July 1. But he believes the rising costs could push the prices of finished goods from Vietnam up 2% to 3% for those that haven't yet raised prices.
David Horvath, vice president of merchandising for Powell, which sources youth bedroom, dining and some small accent furniture out of Vietnam, said the wage issue "certainly has come up. Factory owners are very understandably a little concerned."
He said that labor and other cost pressures already have begun to factor into product pricing, but added that he couldn't say if that will force Powell to raise prices anytime soon.
Guy Walters, a vice president at case goods importer SLF, said labor costs continue to challenge producers.
"All of these emerging market countries are under great price pressure on raw materials and the labor side of the equation," he said. "The slowness of the U.S. market has kept some of them (prices increases) at bay, but they are still under considerable pressures and prices continue to go up.... We continue to try to offset them, but you want to buy furniture now. It won't get any cheaper."