By Paul Pannone
China is still growing as a world power but at a slower pace, according to recent information from Bloomberg. Changes in currency policy among other factors result in higher cost of doing business in China and may cause manufacturers to eventually seek new sourcing for goods. Steve Lang of Mon Cheri visited China this month and gives his view of what’s happening there. Lang is a successful business man who leveraged the production advantages but now see things changing.
“You are owed an explanation as to what to expect from China and how it will affect all manufacturers and all retailers regardless of industry that make product there. I will do my best to explain. Labor shortage will be an issue; it’s hard to believe in a country of 1.4 billion people but there is a shortage of labor that want to work in tough industries like clothing and other labor intensive jobs. The country will eventually eliminate the one-child policy to alleviate this issue. This will make lead times longer, it will force manufacturers to offer less custom services and it will make it more difficulty to get heavily beaded garments made quickly. The exchange rate to the dollar used to be 8 Yuan (Remimbi as it is also called) for each US greenback. It is now under 6.5 and will be 6 by December. It could fall as low as 5.5 before the Yuan stops appreciating. The US Government is pushing this issue threatening trade sanctions if the Chinese do not allow the Yuan to appreciate against the dollar more. The US wants the imports from China to slow. The theory is that production will come back to the US; the theory , that is.
The implications for you are to not expect as many rushes and heavy changes to be accommodated as before. Costs for these services will rise. All manufacturers will see this happening in terms of factories pushing them to stop doing these types of things as a rule and do it more as an exception. When they are done, there will be more errors as workers do not want to do this type of work,” according to Lang
Lang and other off-shore manufacturers we’re speaking with say they are exploring production in the United States. Most say because of the humbling effects of the recession, higher unemployment and less demands from unions the possibility to produce in the US have gotten better. But most say rising taxes and energy costs have eaten away at that possibility and still find it difficult to prove start-up costs and cost of doing business in the US are worth the effort.
Lang continued his views from an editorial standpoint saying, “We will see huge inflation of prices here because so much (of what we buy) is made in China. If that happens, middle and lower classes will be hurt first. Then because the Chinese, who are the biggest buyer of US debt in Treasury Bills will not have the cash to buy our bonds, we will see the US government have to raise interest rates to attract buyers of debt and that will ruin our economic growth.
The boys in Washington need to read a basic economics text. It has been proven time and time again, you cannot have a protectionist government as it violates the basic laws of international economics and free trade. Ask Hoover, Coolidge and several other failed presidencies how it worked for them. The implication for you and me. Prices will rise and will rise a lot. At 6.5 we have already lost almost 19% buying power. At 6 it will be 25%. At 5.5, it will be over 31%. The good news is that if it rises it rises for everyone. If manufacturers including David’s raise prices, we all make more money- retailer and maker alike- if margins are maintained.
Also, people like David’s cannot afford to have prices rise and push them out of the bargain basement price area. Remember that. They will have to compete harder for that bride. They will compete for your bride as well. Same for others who have stores and compete with you (manufacturers who thought it cute to open their own stores and take food off your plate–get it?) An additional implication is That you need to adjust your business model. DO NOT DEFINE YOURSELF AS A BRIDAL STORE. Become a social occasion store that also sells bridals.
This is the approach I have taken as a manufacturer and I morphed by company 13 years ago when I saw the storm clouds coming.I used to be a bridal manufacturer that dabbled in social occasion wear. I am now a huge social occasion manufacturer with a big bridal business but the bridal market is so competitive and not any where near the size of the social market. It is like the difference in size between the earth and the sun.
The bridal biz of less than two million units per year (when you take out the people who do not buy a first or second wedding dress- and first time brides are only 1.4 million of that) is the earth. The sun is social occasion and is a million times larger than the earth! Think about how many people are in white at a wedding and how many will be wearing a social dress. Think about how many wearing a social dress will buy more in a lifetime! How many more bridals will that bride buy?I can fill 10 baseball stadiums a year with the number of social occasion dresses I sell. If I was only in bridal that would be impossible. Think about this seriously and how it affects you down the road,” according to Lang.
Logistically, Lang tells of potential ramifications he feels are coming, if the current conditions persist.
“You will experience delays and longer lead times. I have 27 factories working for me and out of that I have one that is really running late. I will remove that factory. The others I am happy with and am preparing to cut earlier, in bigger amounts and to stock more to service you. Right now I have over $8 million dollars of inventory at my landed cost in the North American warehouses to service orders. I will maintain that level and increase it dramatically as we get towards spring. I am constantly looking for large and high quality manufacturing plants. Several are being checked out now.
Factories will be moving plants from the coast to inland China where there are more pools of labor. I use big factories with the capital to do this. Many of my plants have already begun building factories inland to adjust and tap more ready sources of labor. For retailers, be careful about new start up companies. Be sure they are well capitalized and can deliver. Unfortunately, some manufacturers will be winnowed out by the changes in China. China still is and will remain the best place to make our type of goods. There are other places in the world but they do not have access to the materials or knowledge that exists in China,” he warns.
eWedNewz is questioning other manufacturers about Lang’s concerns. Findings will be covered in later coverage of the story.
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