14800 Mon, 07/07/2008 - 10:22am
HFN Staff Report
NEW YORK–Remember the old comedy routine where the comedian would make an innocuous declaration like “Grandma’s goiter was so big … ” and the crowd would yell out, “How big was it?”
Well, things are bad in China.
“How bad are they?” you may ask.
Things are so bad in China that home furnishings vendors—and this is no joke—are finally passing along price increases to retailers.
High labor costs, rising oil prices that jack up shipment costs and the devaluation of the dollar have all combined to contribute to the rising cost of goods leading to price increases.
Home vendors are reporting that the price of doing business in China has risen from 10 to 40 percent, depending on the category. While most vendors said they are forced to pass along their rising costs to retailers, they’re also considering sourcing from other countries. Others said they will design less expensive, alternative products.
“Our vendor base over there has been raising prices at will,” said Andrew Hill, president of Jarden Consumer Solutions.
About 50 to 60 percent of the company’s products are manufactured in China and, depending on the product, prices have increased over the past year, ranging between 15 and 40 percent, he said.
Jarden may pass along price increases from 4 to 15 percent, depending on the item and the timing. The company has resisted price increases for the past two years, but “we’ve now reached the point where we can’t absorb any more increases,” Hill said.
Jarden is also looking into expanding its production in such areas as Latin America, where most of its blenders are made, and “We’re looking at the usual suspects, including Vietnam, India, Indonesia and even Eastern Europe,” Hill added.
At Lifetime Brands, production increases have varied from 10 to 35 percent, depending on the product line and material, said Jeffrey Siegel, chairman, president and chief executive officer of Lifetime Brands.
Lifetime has “selectively passed along increases,” Siegel said. “The goal for Lifetime is to keep our retail partners margin-neutral and to do everything possible to prevent a decrease in retail sales.” Though it avoids increasing prices unless absolutely necessary, he said, “There is no question that there will be some increases.
“Often products can be redesigned to take out cost which helps temper the increase,” he said. “Other times, manufacturing can be moved to areas with lower labor or energy costs,” he said, adding that the company has moved production of certain products to other countries and “even back to North America.”
The resistance to raising prices has come to an end in the textiles category as well.
“Everything is going up over there,” said Doug Kahn, Croscill’s CEO. “Labor is through the roof, especially with the new government regulations. We’ve resisted price increases for the past two years, but we stopped resisting in the first quarter of this year. I’ve spent the last six months negotiating with retailers on the level of our increases, but they understand that we have to do it because they still want the goods.”
Textiles vendors are also exploring the idea of moving production to other locales. “We’ve dabbled with Vietnam, the Philippines and Indonesia, but China and India are still the main game for us,” Kahn said.
Not every manufacturer has found locating new sources as easy as others. “We have looked around, but the challenge is, could I find a mill in Indonesia or Thailand that could give me better prices?” asked Loren Sweet, president of Brentwood Originals. “You have other issues, too, like the state of the country’s infrastructure, the dumping of wastes into rivers and shipping rates. China has come a long way in terms of dealing with all of these issues, but these other countries may not have figured them out yet.”
Lee Harounian, president of Harounian Rugs International, said his company has seen a 10 to 20 percent increase in the cost of doing business with China over the past year.
The company is among the rug importers and manufacturers who have held back as best it could on passing cost increases along to its customers but, Harounian said, this year there may be no other choice.
“The price of shipping from overseas has gone up as much as 50 percent in some cases,” Harounian said.
Price increases are a reality for lighting companies, whose main source of product is China.
At the recent Dallas Lighting Market, some vendors passed along the second or third price increase within a year. Increases ranged from 3 percent on the low end to 40 percent on the most costly items, depending on material and design, vendors told HFN.
Jim Decker, vice president of marketing for Progress Lighting, estimates that the costs of doing business there have risen upward of 20 percent over the past year, and getting higher. Effective Oct. 1, Progress will raise prices on average 12 percent, all linked to the materials used.
Progress officials are considering moving some of the production of the decorative product line to the company’s factory in Mexico, which does a lot of stamped metal for recessed and downlighting. If the manufacturing process can be adapted, it may be more cost effective in Mexico, he said.
Retailers sourcing directly from China are also being slammed with higher prices.
John Young, the senior vice president of home for Boscov’s, said prices on some home goods form China such as patio furniture have soared as much as 50 percent. In response, the retailer has switched factories and is exploring new sourcing countries such as India for stainless cookware.
“We had furniture coming out of China that we repriced from $29.99 to $39.99 because of prices increases,” Young said. “A table set that was $299 was changed to $349.”
It is also reconfiguring its sets to keep down price points.
“We might take two pieces out of a set of 12 to keep the same retail. It’s a way to get around the price increase: You just change the set configuration to keep the retail.”