Sourcing Strategies by Tom Russell

China’s furniture industry appears strong despite recent challenges

In some respects, China’s furniture industry has taken a beating.

Import growth to the United States slowed in 2007 thanks largely to the stagnant American economy combined with rising prices on finished goods. Some Chinese manufacturers also faced damage due to heavy snowstorms this past winter. The end result, some sources claim, was the closing of some 2,000 furniture plants on China’s east coast shortly after the Chinese New Year in February.

That’s a small number compared with the estimated 15,000 furniture manufacturers in China, but significant nonetheless in terms of the potential impact on U.S. customers.

Yet based on visitor attendance and the number of exhibitors at trade shows in both southern China and Shanghai this year, you’d never know there was any slowdown in the Chinese furniture industry. Nor would you know it by the impressive gala events officials put on at these shows.

Grand opening ceremonies and gala dinners are sights to behold. Opening day speeches often end in a ribbon cuttings and bursts of confetti. Traditional Chinese dancers and musicians perform, and elaborate awards are presented to furniture designers.

It makes one wonder if this was what things were like in North Carolina during its manufacturing heyday a few decades back. Obviously that time is long past. This was recently highlighted by a 17% drop in orders to U.S. furniture factories from July 2007 to July 2008, the worst performance in a year, according to accounting and consulting firm Smith Leonard.

Meanwhile, despite this year’s difficulties, China’s furniture industry still appears to be on the rise. According to officials with the China National Furniture Assn., which celebrated its 20^th anniversary in September, China furniture industry exports rose 28% during the first half of 2008.

That’s in spite of a recent 10%-15% increase in raw materials costs, said association president Jia Qingwen at a meeting with trade press during the Shanghai show.

“Because of the situation, some companies are bankrupt or have stopped production,” he told reporters. “But many still have healthy production.”

The U.S. remains a top export market, but even when it falters, there is still plenty of business from countries like Germany, France, England, Holland, Spain and Japan, not to mention wealthy Middle Eastern markets such as Dubai.

“Despite the increases in labor and raw materials, the Chinese furniture industry is very strong in competitiveness and quality,” added Wang Mingliang, founder of the annual China International Furniture Expo in Shanghai. “The value is there.”

More importantly, the demand from the domestic market in China remains strong and appears to be getting stronger. Furniture imports to China rose 33% during the first half of 2008, according to a statement citing the results of the Shanghai show.

“Within a few years, China will become the fastest growing consumer market in the world for furniture,” the report said. “With more than 10 million new wealthy people living in China, it is further expected that up-market (higher-end) furniture sales will continue to show strong market growth.”

“The middle class people (in China) have had nothing, but now all of a sudden, they have a lot,” noted one U.S. observer who attended the Shanghai show.

This is further evidenced by all the cars on the roads and the expensive new houses going up in and around Shanghai. The message is clear: While the U.S. economy is in a state of upheaval, the Chinese economy remains strong.

In the Chinese furniture industry, the weak companies may be getting weeded out, but the strong ones are getting stronger by taking advantage of the boom. Hence, for those of us who continue to visit furniture shows in China, we’ll likely continue to witness such grand scale gala events for some time to come.

Did you attend any of the China shows this year? If you did — or even if you just watched them from afar — we’d like to hear your comments.

Metal beds makers fight back on pricing

Metal beds importers and manufacturers want retailers to know they aren’t taking the onslaught price increases in steel and other raw materials lying down.

Many are working to limit increases in their own prices to retailers through efficiencies in their operations. Others are considering changing source locations to secure better pricing.

For many, it’s a fine line between using more materials like wood in the finished product, without giving retailers the idea they are abandoning the metal category altogether.

In recent years, importer Fashion Bed Group has added more wood and wood-and-metal and models to the line. Still, metal beds remain a core of the line.

To limit the effect of raw materials price increases, Fashion Bed is looking at changing suppliers in and outside of China to get the best deals on finished product. It also is studying its current distribution network to create more centralized warehousing opportunities that help bring the finished goods closer to the customer base.

Manufacturer Corsican will soon offer five main finishes on eight twin beds in the line, versus the more than 100 finishes now available. The change will enable the company to perform larger production runs on these models. When it takes effect in July, the program will effectively lower the wholesale price of one of those beds from $600-$700 to $350-$475.

Manufacturer Wesley Allen says it works closely with its suppliers to make sure it is getting the best deals on raw materials.

“They have been very good at helping us save money,” said Wesley Sawan, director of private branding. “They work closely with us to find alternative sources of steel that does not compromise the quality of our product.”

Sawan said the company also plans to reduce overhead through a new computer system it expects to have in place by January. He said it will help the company process orders more quickly, automatically invoice customers, and better manage receivables.

“It’s better for us to do things like this on the inside rather than raise prices on the outside,” Sawan said.

Elliott Jones, president of manufacturer Elliott’s Designs, said he had not raised prices in at least two years before a June 1 increase of 10% across the board.

Jones said the company has absorbed price increases in the past couple years on materials such as steel rods, which have risen to $75 per 100 pounds from about $30 per 100 pounds during that period.

“I think the fact that this was our first price increase (in that time) was the best anyone could expect,” he said. “We held off as long as we could, but we can’t continue to lose money.”

Earthquake in China

Imagine for a moment, a natural disaster claiming nearly 90,000 lives and leaving some 5 million homeless. It’s hard to envision this when so much of our attention is focused on our flat economy and the shaky value of our homes.

But in central China, the rising numbers of dead and homeless are realities citizens and their government continue to face each day in the wake of a 7.9-magnitude earthquake May 12 that left thousands of buildings crumbled.

Fortunately, an outpouring of support from around the world has gone to the victims and their families. The quake-damaged area isn’t a furniture producing region like southern China, but the industry nonetheless is stepping forward to contribute much-needed funds and support.

Here are some examples: 

* Leaders, shareholders and employees of case goods and upholstery manufacturer Fairmont Designs contributed $500,000 to the relief effort. The money will be distributed by a nonprofit group that rebuilds unsafe school buildings, and also will provide water, food and shelter in the hardest-hit areas.

“Our funding will go to the reconstruction of the school buildings and to some of the orphans whose parents died,” said company Chairman George Tsai, who was especially moved by the impact on children and schools in the region. He noted that many of the workers in his Dongguan-area production facilities are from the region that was hit.

“The reason we did this is that I feel we owe it to them for the success of Fairmont Designs,” said Tsai. “These people have been with us for 10 years.” 

* Rita Ho, president of manufacturer Somerton Home Furnishings, said a number of the employees of company parent Kingstone Furniture also have families in the affected area. She said the company is helping those employees with financial assistance and providing them time off so they can return to their families.

“We are doing everything we can to assist them,” she said. 

* Lacquer Craft Mfg., which has plants in Dongguan and the Shanghai area, gave some employees a paid month off so they could return to their families in the affected area. The company and its employees also raised an undisclosed amount for the relief effort.

“The Chinese people really came together to deal with this devastation, and our factory also played its part by not only raising funds and donating at the individual level, but also at the corporate level,” said Lacquer Craft President Mohamad Amini. 

* Amini’s brother Michael Amini, who is chairman and CEO of U.S. importer AICO, announced at the recent opening of the first Michael Amini store in Hangzhou, China, that he is donating 100,000 yuan (about $14,400) to help the earthquake victims. 

* Factories workers also have raised money for the relief effort. Their generosity is especially significant given the level of their wages. One factory owner, who chose to remain anonymous, told Furniture/Today that his 900 workers donated about $2,000 to the cause, which represents about 1% of their wages per month. The company also gave donations to local governments in various towns affected.

Some, however, are choosing a low profile in donating to the cause. That’s because the Chinese government apparently views such organized efforts among the citizenry with some trepidation. A recent column in the Wall Street Journal said the government distrusts groups that can raise such support among the masses.

In the past, China has even taxed charitable contributions at a rate of 12%. That means the person donating has to pay the tax, according the aforementioned factory owner, who added that the government has lifted the tax in the case of the earthquake.

Still, we’re not surprised at how the industry has stepped up to the plate in this case. On that note, we’d love to hear more stories about what furniture companies are doing to support the cause. What is your company doing to help the victims of this disaster?