I am well into my 2-week long Asia trip and putting in a few travel miles. The cities I am visiting this trip are Hong Kong (to spend time in our offices and showroom located there), Shenzhen (to see our beautiful new factory showroom and meet with customers), and Shanghai (to work in the Gerson office and with our team). It’s been a productive trip, and I have about 4 days left before returning home!
I have two take-a-way’s from the trip thus far, and today I will address material and costing increases which continue to be the most discussing subject of concern with both our factories and retail customers. This blog is an update from my previous blog, “Why I’m Not Sleeping”, with more real time numbers to give readers a better feel for the current situation.
Price increases continues to be the hottest topic of conversation with our factories and our customers. It drives me absolutely crazy when I’m told our prices are going up without being supplied the specific reasons for those increases, so I decided to put together the numbers below in order to paint a clearer picture. These numbers include the primary component areas that our factories use in determining costs, and the percentage of change from 2016 to 2017.
As you can see, every single area shows a higher cost except for one!
To be even more of a downer on the current sourcing situation, the Chinese government has closed roughly 80,000 factories throughout summer and fall this year in order to address the growing environmental concerns. Less factories to source product means slower production time and less competition for these ongoing concerns.
Although the current situation in China is causing our prices to increases here in the United States retail market, the good news is that China is taking an important step toward making this world a better place to live in, which is absolutely vital. Even better news is that we have put together an absolutely beautiful Fall and Holiday Gerson International™ 2018 product collection for you. I cannot wait for you to see and experience it!
I look forward to hearing from you, and as always, your comments are appreciated.
It’s a fact that I am just not a great sleeper. But lately, my already disturbed sleeping patterns have grown worse to the point where I just cannot get a good night’s rest!
My hope with this blog is that I can offer insight into Gerson world, and share with you current issues that have an affect on our mutual business. And although I rarely get good sleep, the cause of my current dilemma is a result of occurrences across the world in China. You would never think that something happening so far away could cause challenges for us, but this is the world we live in.
The biggest challenge for those sourcing in China (like Gerson) used to be so simple: How and where to find the best product from season to season. But now that has really shifted in such a way that designing and finding exciting products is the least of our challenges, and the bulk of our work really begins afterwards. In 2017 – specifically the last 6 months – factories in China have begun experiencing impactful changes to their businesses, which in turn affects importers like Gerson, our customers, and ultimately, the U.S. consumer.
The four areas which have the potential to increase pricing and challenge future deliveries are:
Labor: Many of our products are hand-made, and the younger workers coming into the labor market in China are seeking work environments such as tech companies and newer, more automated facilities. Thus factories are having a tough time finding enough qualified and dedicated workers, which drives up labor costs.
Environment: The Chinese government has their version of the U.S. Environmental Protection Agency (EPA), called the Ministry of Environmental Protection (MEP), which has recently begun making a concerted effort to improve environmental conditions throughout the country by the end of 2017. In order to meet their goal, the MEP is currently inspecting and closing thousands of factories that do not conform to their environmental standards. This is challenging deliveries of product being imported from China, as well as driving up costs because factories must invest in equipment to conform.
Packaging: Costs in this area have risen 30% in the last 6 months, and this is on top of price increases in 2016. Shipping cartons, product displays and tagging are all significant components in production of product coming into the U.S.
Currency: Like any other currency, the Chinese Renminbi (RMB) fluctuates against the U.S. dollar. And this year, Chinese factories are losing 3-5% on the exchange rate. As a result, Chinese factories are passing along price increases of 3-5% to cover this gap. (It’s interesting to me that when the currency works in their favor, price decreases are rarely offered..)
The effect of these four obstacles in China both challenge future delivery dates and create price increases which we always try hard to negotiate against. And although this quadruple ‘whammy’ is exceptionally tough to manage, our company strategies are aimed at minimizing the effect they will have on us, and in turn, our customers.
Communication is one of our company’s primary goals this year, and we are committed to sharing information with our retail partners and associates. I believe it is more important that we communicate our plans so that our customers understand and know we are always committed to work hard on their behalf to navigate these choppy waters.
We all have challenges in our respective roles in the world of retail, and supplyingWOW product priced competitively and delivered as promised, is our challenge and responsibility. We don’t want The Gerson Company to ever be responsible for anything less than a great night’s sleep!
On that note, even with the growing obstacles these days in navigating sourcing in China, I realize how small these challenges are compared with the millions of people whose lives have been turned upside-down by the hurricanes. Our thoughts and prayers are with those suffering, and we are hopeful their lives will return to normalcy in the near future. We want all our customers to know that we are working closely with our many customers who are scrambling to re-open their businesses in the affected areas.
Thank you for your time, and always feel free to reach out to me with your questions and comments!