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Are You Really Still Surprised By China’s Squeeze?

Monday November 8th, 2010 - 10:40AM


The sourcing squeeze in China may be old news now, but the helplessness is palpable in the tone of many housewares executives I’ve talked with since their recent return from their yearly autumnal swing through China.
Soaring labor costs. Currency revaluations. Restricted production. Staggering lead times. Grounded cargo ships. There’s no relief in sight from China, reported many suppliers, anxious not just about how to price 2011 goods, but also about when they might receive them.
One executive from a veteran supplier of niche kitchenware products told me factories, importers and everyone up and down the supply chain no longer can absorb price increases without a potentially damaging disruption in the flow of goods. He expects negotiations with retailers to take increases in 2011 to be as intense as ever.

A Little Inflation

Many on the supply side will argue pricepoints in this business have been so radically deflated the past couple of decades that a little retail pricepoint inflation on the basics won’t tear down this business, even in a market of cautious consumer demand. After all, they reason, big-volume competition, not consumers, inflamed the price wars. China obliged, and everybody followed.
Major retailers now are feeling the pain of rising costs firsthand through their own Chinese sourcing programs. Nevertheless, convincing them to boost pricepoints a few dimes or a couple of dollars here and there remains daunting, even if all good business sense dictates it might be necessary for the sustainable profitability of all parties involved.
One look at all those sub-$10 electrics deals in this year’s Black Friday ads leaked online (How about a $3 slow cooker to breed consumer confidence?) and you get a sense retailers are in no hurry to wean shoppers off pricepoints that undervalue much of this business.

Swept Up

You can understand the feelings of helplessness from suppliers, can’t you?
On the other hand, the president of a large cross-category housewares company who also recently returned from China cautions suppliers not to become swept up in the helplessness.
He conceded this is the industry’s most challenging period in China. However, he said, the industry can’t take its eye off its ultimate responsibility to delight the consumer as it copes with escalating costs and supply chain hurdles in China. And the inflexibility of retailers. And the fragile economy.

Earliest Shockwaves

His rather blunt response to those lamenting the situation there: “Is anybody really surprised?”
Acknowledging few companies fully anticipated the sourcing “earthquake” in China hitting as hard as it did in 2008, the executive said companies strong enough to have withstood the earliest shockwaves have had two years to build even more sway into their organizations, their supply chains and their selling and marketing strategies.
The largest and most resilient of these companies probably will end up bearing a bigger load when it comes to imposing new rules of engagement with factories, retailers and consumers. The rules must change, though. And when they do, everyone should be glad to follow. Suppliers of all sizes might even rediscover some empowerment.
“It’s a time to be brave,” the executive said, a statement presumably applicable to everything from reinforcing sourcing options to negotiating price increases with retailers to good, old-fashioned salesmanship. “If you can’t see victory before the game, don’t even go onto the field.”
If you’re still feeling helpless, you can blame China. Or retailers. Or whatever else might be out of your control.
Or you can reinforce what you do control.
Is anybody really still surprised?

 

—Peter Giannetti