Inflation coming. Time to address perceived value
Chinese imports face rising costs
Randy Eller -- Home Accents Today, 8/18/2010 8:33:56 AM
The winds of change are blowing harder than they ever have before in China, the country that controls the destiny of our industry more than any other. We are about to find out that unlike Las Vegas, what happens in China does not stay in China.
If you're paying attention to the news, you're noticing two things that will greatly affect pricing on goods out of China in the near future.
First of all, many of the migrant farmers who have worked in factories near the seaside ports for years are moving back to the interior of China where their families live, as the government now engages in a factory-building program in the interior areas as well. This is causing a well-documented labor shortage in many of the factories that our industry depends on.
Secondly, and previously unheard of in a communist country, are the recent labor "strikes" at Honda and other industrial factories, where the government and plant owners quickly capitulated and gave raises of 20% or more to the workers. Although deserved, social "sea changes" of this magnitude will not stop once begun, and we can expect that labor actions and higher wages will start to roll across China over the coming months. The government feels the risk here is low at this point because China is in the early stages of becoming a consumer nation herself and the economy is not as dependent as it once was on exports.
The end result of the above is that prices on products made in China are going to go up, and probably significantly. I believe we can expect by the January markets that prices will have increased, and some of that will have to be passed along to retailers and consumers.
Is there a wild card that could prevent these price increases? China, ahead of the G-20 Summit, has announced that it will take a look at revaluing the yuan against the dollar. Westerners, thinking like westerners, are reacting as if this may have significant effect in a positive way on the pricing of goods out of China. Do not count on this. The Chinese are the greatest negotiators in the world, and they understand that anything they say that can buy them some time and goodwill is to their benefit. Significant political and economic change in China affecting the outside world has always been given out in spoonfuls, not container loads. Westerners think three years is longterm planning. Long-term planning in China is done by generation.
So, what's the most important thing you can do, right now, to ensure that when this begins to happen, your customers will not leave you?
If prices go up as I believe they will, then your customers are going to start to question whether or not they still want to buy from you, or look for a lower-cost provider
Start accelerating the pace of any and all things you do in your company that add to the perceived value of doing business with you. If prices go up as I believe they will, then your customers are going to start to question whether or not they still want to buy from you, or look for a lower-cost provider.
Your ability to keep these customers will depend to a great degree on how good your customer service is, how fast you ship, how pleasing your salespeople are, and how customer-friendly your policies are. Get to work on tightening up these pillars of your value proposition, and you will survive the coming inflation simply because you are such a pleasure to do business with that no one will leave you.
And, as always, there is a silver lining to every cloud. As the changes in China accelerate, the great vendors in this industry will begin to look to other countries for better-priced product. When they do, they will find a treasure trove of creative new artists, giving them all kinds of new thinking and execution of their art.
When I first entered this industry, nearly all great Asian product was coming out of Japan. I've watched it move from there to Taiwan, then to China, the Philippines and a few others. And in each case, except for some short-term fear and discomfort that change always produces in the marketplace, the industry ended up for the better. It will happen this time too. As the old saying goes, if you want to predict the future, just look to the past.
Short term? Button up your business policies and take the greatest care of your customers you ever have. Long term? Look for a watershed of bold new products coming to the industry from those companies who have the foresight to diversify out of China for sourcing.
Good selling!
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