The Decade’s Major Influences, Pt. V: Imports

Random thoughts….

by Mike Hartnett (September 17, 2007)

(Note: To celebrate Creative Leisure News‘ 10th anniversary, I’ve surveyed readers and chosen the people, companies, and events of the past decade that have had the greatest influence on our industry of today. In previous issues I wrote about the decade’s most influential category, scrapbooking; the most influential person, Michael Rouleau; the new generation of craft consumers; and changes in the old order – click on the headlines in the right-hand column to read them. In future issues I’ll write about other major influences – Technology … Media … Investors … Lower Margins … Yarn and Beads … Wal-Mart.)

There is no more complex subject than imports. They keep inflation down, but take U.S. jobs. The ultimate conundrum: The lower middle class family complaining about U.S. manufacturing plants closing down – as they drive to a discount store to buy imported products because they cost less.

Now the situation is about to become more complex: the current and future impact of imports will be determined in part by factors far beyond the control of vendors or retailers: international currency fluctuations and government regulations. Some random thoughts, in no particular order:

1. Many years ago when imports began to make a major impact on our industry, a leading U.S. manufacturer launched a “Made in America” campaign. I thought it somewhat ironic when I learned that all of the machinery the company used to produce its products was made in Germany. “Made in America”? Well, sort of.

2. One day an import company called me in a panic. A customs official refused to allow a container-load of artificial spring flowers to be unloaded, saying it was taking away U.S. jobs. Timing was critical; if retailers couldn’t get their order of spring flowers in time for, well, spring, they didn’t want them. The company hired a high-priced lawyer in Washington and asked me to write a letter. My letter said, in effect, “That container of flowers isn’t taking jobs from U.S. workers; those jobs were all lost years ago.” The flowers were unloaded.

3. I toured an industry manufacturer in Europe who was a major vendor in the U.S. I was shocked by the working conditions, particularly the air inside the plant. If that plant had been in the U.S. the government would have shut it down in no time. No wonder U.S. companies have trouble being price competitive; they have to spend money keeping their employees healthy. What a concept.

4. A U.S. manufacturer is not worried about foreign imports because he has invested so heavily in technology, employees’ wages are a very tiny fraction of his costs. So U.S. workers didn’t lose jobs to imports, exactly; they lost them to technology.

5. Sometimes I worry and wonder, “What will the U.S. be like when we don’t make anything?” And then I realize that if this was 150 years ago, when thousands were abandoning farms to work in factories, I would have wondered, “What will the U.S. be like when we don’t growanything?”

6. A vendor recently wrote me, “Around 25% of my product is from China now, and I would estimate that amount will move to 50% in a few years. Sad, but the retailers have forced me to do this, and the American worker gets punched yet again.” Are the retailers at fault, or the consumers? With the constant emphasis on cheap, cheap, cheap, what’s a retailer to do? How many retailers have the great merchandising skills and strong reputation that enable them to appeal to consumers on things other than price?

7. I think the majority of Chinese factories, especially after all of the recent recalls, are trying to make products according to U.S. safety standards. And U.S. companies check those factories, probably now better than ever. But what about the Chinese sub-contractor? When a busy factory farms out part of an order to someone else, who’s checking the sub-contractor?

8. A U.S. manufacturer, whose products require a very specialized, expensive item, had for years bought that item from a plant in Germany. Two years ago he found a Chinese manufacturer who would make a comparable version. “Even if my sales are flat,” he told me, “I’ll increase my bottom line by $200,000.”

9. Wal-Mart’s recent cancellation of stitchery made me realize one benefit of making your products close to home: you can increase or slow your production much quicker than if you’re sourcing overseas. If you have a container load on the ocean bound for a retailer who just cancelled your order, what do you do?

10. Ever since this industry began shortly after World War II, deals between vendors and retailers have been completed at trade shows, in buyers’ offices, or in stores. Now some times the parties involved meet in China to finalize the deal.

11. Notice I always write “U.S.” rather than “America”? I used “America” for decades, but changed after a conversation with a subscriber in Mexico. “Mike,” he said, “we’re America, too. So is Canada.” He was pointing out a fault many of us in the U.S. have: we think we’re the center of the universe.

The Future.

I think China has peaked. It will remain a huge producer of goods for the U.S., but as China’s standard of living rises, so will the cost of its products. Some vendors, in and outside our industry, are beginning to hedge their China bets and are investigating Viet Nam, Bangladesh, India, and Thailand.

Retailers better be careful. Their relentless drive for cheap, cheap, cheap could easily end up with stores full of products that are so unattractive, poorly made, or dangerous, that the consumer won’t buy them, regardless of the low price.

Some retailers, in their relentless quest for better margins, are sourcing products themselves, eliminating the U.S. vendor/importer. They will learn that this strategy is not the margin-booster it appears to be. Without the U.S. supplier, retailers will have to hire large numbers of designers and product development pros. Chinese companies will make whatever they’re told to make, but make what?

If a year from now there are still 130,000 U.S. troops in Iraq and the U.S. economy has faltered, the Democrats will win the White House and increase their control of both houses of Congress. Then you’ll see much tougher legislation on inspections of imports and revaluing the Chinese currency.

(Note: Agree with these predictions? Disagree? Have any that Mike missed? Email your thoughts – on or off the record – to CLN at mike@clnonline.com. To read previous articles in the series, click on the titles in the right-hand column.)

xxx