In a country of 1.3 billion, it's hard to imagine there could be a shortage of workers. But that's the situation some Chinese furniture producers are facing. And with inventories tight at both retailers and manufacturers, there are concerns that factories could not quickly deliver more product if there's an uptick in orders. Industry sources interviewed in recent weeks say that Chinese furniture factories in the Pearl River Delta region have 30% to 60% fewer workers than they had in 2007, before demand weakened for their products. When orders tapered off, many factories laid off workers or shut their doors. Because Chinese workers don't get unemployment benefits, many were forced to join their families in rural areas for support. Many have yet to return because they don't sense a big upswing in hiring. "What we are hearing is that with the number of factory closings — and there have been a fair number — the laborers are saying, 'Why do we want to take a risk in coming back from the rural areas?' It is causing some spot labor shortages," said Jim Berk, CEO of accent furniture specialist Bailey Street. "It's not a rumor, it's a fact," added Ray Steele, vice president of sales for accent furniture specialist Ultimate Accents. "Factories had to cut back and they don't have such a thing as a layoff where you get to draw unemployment." Steele said one Chinese factory he sources from went from 850 workers in 2007 to 400 today. Another went from 1,000 workers to as low as 400. China's furniture industry also competes for skilled labor with other industries such as electronics, which in some cases offer higher paying jobs. The government also is snatching up workers for various projects it is funding through its stimulus program, such as a 15,000-mile high-speed railway set to be complete around 2020. How this affects U.S. furniture retailers and consumers largely depends on how quickly orders bounce back, and how quickly factories can add workers. George Tsai, chairman of Chinese case goods producer Fairmont Designs, said he believes many workers who have returned to the rural areas will have spent much of their savings and will want to return to work in early 2010. "I have been hearing that especially after Chinese New Year (on Feb. 14), we will see some restless people," he said. "They will want to return to the coastal areas to make more money." As president and CEO of midpriced fabric and leather upholstery importer Luana Living, Luana Davis spends more time in China than she does at the company's headquarters in San Diego. She said she has seen signs in factories there advertising for workers. "I think a lot of companies just trade labor" as workers leave one factory to work at another, she said. "There's not a lot of loyalty here because they're paid so little money." Still, sources say, many factories have more been reluctant to hire many workers back until they see a significant boost in business. That chicken-and-egg situation could result in some product shortages and temporary delays in shipments, causing longer lead times. "I think we have a serious problem in terms of inventory," added Bew White, owner of casual furniture producer Summer Classics. "From my perspective, I've lowered my inventory by $5 to $6 million. Factor in that we've lost a number of manufacturers along with the products they had been making, and you see the challenges ahead. From our side, we are already having trouble getting product in from China and when the orders for early buys begin coming in, it is going to become even tougher." He suggested that retailers could minimize the impact of product shortages by making "a commitment to suppliers for an order that ships immediately, but to also place a backup order that can be sent later on." Bailey Street's Berk said he believes while spot labor shortages will be a problem short term, China ultimately has enough skilled labor to fill future job openings. In the meantime, he said his company relies on its overseas agents to identify which factories are having the most challenges from a labor standpoint. "If there is a problem, we would then anticipate a longer lead time in getting product," Berk said, adding that the company warehouses nearly all of its line. In light of the current labor issue in China, he said the company will be proactive in managing its inventory and reserve goods for various customers. As the economy bounces back, Chinese manufacturers will bounce back as well, said Davis of Luana Living. "It's not as if they've downsized the size of their factories; they've just lost some labor," she said. "From what I'm seeing, they haven't downsized their behind-the-scenes offices. I haven't heard of anybody they've cut back in their accounts payable. Attrition is the only way they've lost people in the offices. So it's just a matter of getting sewers, cutters and upholstery people."
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