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Ships of Fools

The home furnishings industry, if you’ll excuse the expression, is scared silly. Virtually every product that you plug in, sleep on, dry yourself off with, put your clothes in, eat on, and generally use in your home comes from someplace other than the United States.

And if these products are going to be the ping-pong balls of international diplomacy over the next four years, the consequences could be unprecedented and possibly devastating as well. We all know the new administration in Washington has made what it perceives as an unfair imbalance in global trade to be a benchmark of its policy initiatives. We know too that talk is cheap—not to mention easy—and that the ultimate outcome of any radical change in international commerce is far from certain. We also know that the home furnishings industry is far from alone in the broader consumer products universe in being potentially turned upside down by all of this. Other industries, from apparel to automotive to agriculture, will all see enormous impacts if this rhetoric turns to reality.

Home Alone

But home is somewhat different. While a lot of attention has been focused on the car business with its intertwined global sourcing models, the fact of the matter is that the majority of cars and trucks sold in America are still made in America. Apparel, while largely an import-dominated business, has a relatively low cost of entry and there are still thriving pockets of American manufacturing in the South, Los Angeles and several other locales. Even agricultural products are still largely grown, processed and manufactured domestically.

Home products, not so much.

If something has a plug in your home, chances are it came from overseas. Whether it’s a lamp, a toaster oven, a TV or a hair dryer, it will say in the same print “Made there…not here.” In fact, the small appliance business was one of the first major American industries to move offshore, first to Japan, then to Taiwan, eventually settling for the most part in China … yes, that China that is being threatened with a 35 percent duty.

Household items like dishes, flatware and glassware used to be largely American made but they too followed a similar route and today are mostly Asian. And what isn’t from Asia is usually from Europe, from places like Portugal, Italy and Germany.

Furniture is a little more diverse, as much a function of size as any other dynamic. Today about 90 percent of the bedroom, living room and dining room wood-based products we buy here are made there. Still using a less automated manufacturing process than other household items, products like dressers, chairs, tables and bookcases have followed the cheap labor route, moving first to Taiwan and then China, but more recently to Vietnam and other Southeast Asian countries.

Upholstered furniture—what the industry calls sofas and such but what regular people call couches and chairs—are not quite as import-dependent. Perhaps as much as 40 percent of that business remains domestic if you count the final assembly stage where components from Asia are shipped here and put together by U.S. hands. That number has remained pretty steady, driven in large part by the custom-made nature of most sofas that negate the advantages of mass production overseas.

Bedtime Story

Then there’s sheets and towels. The next time the folks at the Harvard B School are looking for a good case study, they really ought to take a look at this category because it exemplifies the good, the bad and the ugly of international commerce.

Up until the turn of this last century, home textiles products like sheets, other bedding products, towels and assorted accessories were largely domestically made. Big textiles mills like WestPoint Stevens, Springs and Fieldcrest Cannon spent a lot of money keeping their manufacturing facilities up to date and state of the art to keep costs—and headcounts—down.

And it worked. It was one of the most efficient, low-cost and import-busting industry sectors in the country.

But then came the opening of international trade and the breakdown of barriers. It wasn’t NAFTA in this case; neither Mexico nor Canada had robust industries in this field, so they were not the threat. It was Asia. And when duties came off imports from China and elsewhere in the early 2000s, the dam broke…the tide changed…and well, you get it: All hell broke loose.

In a matter of just a few short years, an industry that was 90 percent domestic totally flipped and became 90 percent imports. Eventually that number went even higher and today there is only one—count ‘em, one—decent-sized home textiles mill in the United States selling to the retail market. (Ironically it is owned by a Pakistani company, which is another one of those subtleties that has escaped the conversation so far on trade imbalances.)

With this shift came an enormous advantage for consumers. Suddenly, they could choose products from literally hundreds of suppliers from a number of countries, rather than the limited assortments they were subjected to when just a handful of American companies controlled the marketplace. This new competition not only brought new product options but also lower prices. Today you can buy high-quality sheets and towels for the price you would have paid for opening-level goods 15 years ago.

Of course, the shift also brought a devastating loss of jobs throughout the American southeast where most manufacturing had been centered. Tens of thousands of workers lost their jobs and it has taken at least a decade for recoveries in some of these regions to take hold. But take hold they have. The area along the Georgia and Alabama border where WestPoint Stevens had its main manufacturing is now the home to two giant automobile factories, from Kia and Hyundai. BMW set up a factory in the former textiles region of South Carolina around Spartanburg and its suppliers, including Michelin and others, followed. (All from foreign-based companies employing American workers…but I digress.) And what was once the giant Kannapolis, NC headquarters and mill for Fieldcrest Cannon is now a medical research center.

This normal ebb and flow of business and industry is not uncommon, of course. The original home textiles and apparel manufacturing bases in New England, around Boston, have become the East Coast capital of high tech, rivaled only by Silicon Valley in California. It’s just what happens.

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The 35 Percent Solution?

Nobody—at least nobody in their right mind—expects all of this talk of duties and tariffs of as much as 35 percent to ever become reality. They are being fostered by someone who is the first to admit that he takes an outrageous opening negotiating position, knowing the bluster will drive an acceptable deal in the end.

But any change in the rules of international commerce will have profound effects on the home furnishings business…and not necessarily the intended ones:

  • Manufacturing of home furnishings will not return to the United States in any meaningful way. Building big factories to make things like toasters, towels and teapots requires big bucks. The return on investment is low, slow and not entirely guaranteed. People with money almost always can find a better way to spend it. Besides, the people who know how to make these products aren’t around anymore. For some of these industries, it’s been a generation —maybe two—since anyone worked doing this. Do you know any millennials who want to run a sewing machine hemming pillowcases?
  • Any additional costs due to things like increased duties, taxes and whatever are going to be pretty much passed along to the consumer, with predictable results. Makers and sellers of these products don’t work on big fat margins like Apple or Facebook. They are not going to eat these costs. And consumers, faced with higher prices on household goods they’ve gotten used to paying low prices for, are not going to rush out to spend more.
  • American home furnishings companies are also not going to get any better at learning how to export, prolonging a dismal track record of ignoring overseas business opportunities. Even the few that get their export acts together are going to face retaliatory trade barriers from the rest of the world, which will not be too pleased with the new rules of international commerce.
  • Finally, without the option of buying goods from around the home furnishings producing world, American consumers are going to be faced with not just higher prices, but with fewer choices, diminished assortments and generally less interesting products. That ain’t going to go over real well either.

Put it all together and the look of worry on the faces—and balance sheets—of the home business are easy to understand. These are very much scary times.

In the meantime, all those ships of imports are still on their way to American shores and American shelves. If the walls go up, not just on our borders but in our ports and loading docks too, it will indeed have been perhaps the most foolish move in American business history.

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