Retail Store Supply Info

This two-part series discusses the current challenges being faced by importers of Chinese goods, particularly retail fixture providers, and the swiftly-changing landscape of Chinese exportation. Below is a follow-up to Part I – Governmental controlled market factors.

Part II: Market-Controlled Input Factors

As discussed in Part I, changes in the global marketplace and Chinese economy have dramatically affected the financial truths of exporting products from China. The Chinese RMB continues to appreciate against the dollar and government incentives favoring exporters are slowly being eliminated. In addition to these government-controlled aspects, global and Chinese markets control input factors that directly affect the costs of goods we import. Specifically, we have seen elevating prices in two major market-controlled arenas impacting the costs of Chinese exports: labor rates and raw material costs.

For the past three decades relatively inexpensive labor has been the foundation of the Chinese economy. However, in recent years labor rates have risen more swiftly as China continues to grow as an industrialized nation and global leader in exports. As a result, a growing worker shortage, mostly driven by rapid increases in economic demand, has forced Chinese factory owners to increase wages. China’s inexhaustible supply of skilled migrant workers has not kept pace with such demand. Research from the Chinese Academy Social Sciences shows China’s rural labor surplus at approximately 50 million, much lower than the previously estimated 150 to 200 million. In addition, competition for skilled or trained labor is fierce as output demands increase, further exaggerating the rate of escalation in wages.

Additional economic factors such as higher energy costs, rapid industrialization and a new labor law which took affect Jan. 1 have also contributed to higher wages, greatly increasing the prices of the end-product Chinese manufacturers produce. Exporters and procurers of retail fixtures and displays can expect higher prices to continue (labor costs are expected to raise 15 percent this year alone), but the increased rates will remain modest in comparison to stateside labor.

Just as China’s labor rates are increasing, so are the costs of raw materials. Chief manufacturing materials such steel, nickel, plastic and fright components like oil, paper and packaging have all been increasing as the global marketplace continues to shift. We have been fortunate in the past to have experienced a relative stable global economy and seen little changes in the costs of these materials until recently. Costs for these inputs have risen dramatically in the last few years. The chart below illustrates this point:

The price of oil greatly impacts the global economy and, directly or indirectly, affects all raw material movements. Just three years ago we thought we saw a substantial increase when prices went from approximately $37 to $50 a barrel. Now with prices at approximately $125 a barrel and recently seen as high as $145, this input alone is a reason for increased costs and higher end-prices, as you have undoubtedly been experiencing at the gas pump.

Just as your wallet has been feeling pressure from the pump, no other input is more affected by the price oil than freight. Freight comprises a big cost for Chinese exporters and this includes accompanying freight components paper and packaging. These costs have risen steeply in direct correlation with oil. Corrugated boxes alone are comprised of nearly 17 percent crude oil derivatives. Like many raw materials, freight costs and materials needed to ship goods will continue to be high so long as oil stays at unprecedented prices.

Like oil, steel is a great example of a “was stable, now sky-rocketing” raw material. The demand is high all around the world, and especially high in developing cities of China. Steel prices increased minimally from 2003-2006. It’s all been downhill, or should I say uphill, since then. This year alone steel prices have increased 50 percent and as prices continue to rise, global demand shows no signs of slowing down.

Nickel, a critical element to chrome plating, is another raw material the fixturing industry greatly depends on for a number of products. As illustrated in the above figure, we’ve seen an astounding 350 percent increase in costs, though recent months have shown a relatively small regress. Equally important to fixture manufacturers, petroleum-based plastics are the foremost material in mannequins, torso forms, shopping baskets and signs to name a few. Last year resin suppliers began their rounds of price increases (a direct correlation to oil prices) and, like many inputs discussed, are forecasted to rise before they stabilize.

So what does this mean?

The market-controlled input factors have clearly changed the price threshold for imported goods. Labor and raw material costs are rising, and are forecasted to continue to rise. Nonetheless, China’s relative competitiveness still makes importing retail fixtures and POP displays viable for the foreseeable future. As procurers of imported goods, it is important that we all stay educated on the underlying cost impacts to continue making the best purchasing decisions for our companies and to continue to experience the gains the Chinese market has to offer.

Andrew Sharon
President
The Nu-Era Group

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Going green has become a household phrase in the last couple years. Companies across the board are implementing green initiatives and spending a lot of money to tell the world about it. Global sustainability is a growing concern that must be faced by all of us, not just leveraged as a public relations tactic, but a focused issue that is confronted by us as human beings to better the environment we leave for the next generation.

Manufacturers and suppliers in the retail fixturing industry are no exception to the green movement. While a socially and sustainably responsible supplier of imported Chinese goods may sound oxymoronic, Nu-Era is taking steps to reduce the carbon footprint we leave behind. So, what does it mean to go green? While we can’t eliminate our impact on the earth, we can strive to reduce it.

The Nu-Era Group has made concentrated efforts to combat pollution and contribute to global sustainability. Reducing packaging waste and continually creating innovative ways to ship more efficiently and reduce emissions not only leads to less pollution, but allows for cost-savings. Recycling initiatives in all our facilities and the use of recycled, carbon-free paper has also become common practice.

Being socially responsible is important to us as well, from maintaining international safety standards to providing a safe and clean working environment with respectable pay to treating employees with dignity and respect. To be green isn’t just to be environmentally-conscious, it’s to be aware.

What green initiatives have you or your company implemented?
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