China furniture industry suffers along with U.S. market
Asian factories hungry for orders
A reader of my last Sourcing Strategies blog raised some valid points in regard to China’s furniture industry. The reader noted that surface level observations seen at the September Shanghai home furnishings trade show were just that — surface level observations.
“Anyone who is doing business will tell you — things are rarely as they appear here,” the reader wrote. “One of the hardest hit of all industries here in China has been furniture, particularly for furniture exporters, raw material sellers and anyone else attached to that industry.”
Another reader said: “After buying from China for six years and going to trade shows every year, my best advice would be — don’t believe their numbers. We work with some of the largest manufacturers in China and the ‘exports are up’ story is not the same as the one they are giving.”
That said, I went back to some furniture importers to see what they have experienced in recent months, particularly since the October market downturn. The message wasn’t pretty. Here is some of what they had to say:
+ Chinese factories are asking for orders on a daily basis to occupy their unused capacity. Indonesia, Thailand and to a lesser extent Malaysia are also suffering because of the slowdown in U.S. demand.
+ Chinese New Year starts on Jan. 26, but one source said two of his factories are closing on Jan. 12, well ahead of when they normally would shut down for the celebration. They will reopen around Feb. 9.
+ Another source said that his China factories are running as low as 50% capacity, compared with about 65% to 70% that is the norm in Vietnam. One side effect of the low capacity use is reduced lead times. With wood products, they’ve fallen from 60 days between order and shipment to around 40 or 50 days, and with metal product they’ve shrunk from the usual 55 days to about 35 to 45 days.
+ Some factories are laying off workers — or closing — as the industry adjusts to the reduced demand. One source said 70,000 factories in China have closed this year across a wide swath of industries. This has included an undetermined number of furniture factories, the source said.
+ Rumors suggest this trend will continue in 2009 as many Taiwanese-owned operations in and outside the furniture industry could close for good and not reopen after the Chinese New Year. Many companies might simply leave China altogether in order to avoid government penalties and fines associated with the plant closing.
I suggested in a blog a while back that the factory closings were merely weeding out smaller or weaker players in the Chinese furniture industry. Some industry experts and observers suggest otherwise.
“Retail is so bad, it doesn’t matter if you are the biggest or the smallest,” said Ray Steele, vice president of sales for Ultimate Accents. “No one is coming in the door.”
mm32w commented:
With all the Americans out of work due to out
sourcing since Bill Clintons NAFDA signing...
NOW jobless Americans can't even afford low
cost furniture! A visious circle indeed!
We should learn from Brszil because they take
care of their Countrys people first. Approx. 16 years from the NAFDA bill was signed by Bill and
look at us now!! So sad for the USA!
Charles commented:
Yes, that is the truth. And as a matter of fact, most of the closed manufacturers here in China are rather big players, because the slow down of orders gave them much bigger pressure on cost for maintainance for big plants and workers.
The interesting thing is that now there is a lot of factories who was mainly doing business in China domestic market switched to explore international market, while most of the export oriented factories are rushing to find domestic channels.
Hard to say what will happen in 2009, but one thing sure is that if the factories in China can not find a way to strengthen design or innovation capabilities, they will keep suffering for a long time.
