Promotional Product Industry Headaches - China & Cotton

It’s been a rocky past couple of years for the promotional products industry in more ways than one. The good news is that business has picked up quite a bit over the past 8 months according to the industry press. And to me personally, it certainly seems a lot more like a normal year, especially compared to the debacle that was 2009.

However there are serious issues worldwide and especially in China right now that pretty much ensure that we’re not out of the woods yet and the prevailing opinion among many industry leaders is that more rocky times lie ahead. The situation has already had a direct effect on some of my clients and there’s a better than good chance that it will affect more of you in the coming weeks and months.

The Issues-

Rising Prices for Suppliers
Lack of Inventory
The Cotton Problem

Let’s take ‘em one by one:

Rising Prices- Lots of factors at work here. The economic collapse of 2008 put the lid on ordering and the Chinese factories responded by trimming operations and payroll. However, when demand ramped up again earlier this year, manufacturers had to contend with a couple of challenges that they hadn’t planned on. One was and is a labor shortage. It wasn’t publicized in this country, but coinciding with the Obama Stimulus Package, China enacted its own stimulus package – creating a ton of new jobs related to the rebuilding of China’s infrastructure – jobs that paid a lot better than the factories did.

And many of those workers, who happen to be under the age of 40, have only known an expanding Chinese economy with plentiful jobs. They’ve become much pickier about wages, benefits, social status and working conditions than their parents were. Combine that with tax incentives that make it more attractive to work close to home and the byproducts of China’s one-child per household policy and all of a sudden factories can’t find enough help. And the workers they do hire won’t work for paltry salaries anymore.

Bottom line, China’s much celebrated pool of cheap labor no longer exists and manufacturers need to spend more on compensation to maintain a work force. But the problem isn’t just labor, it’s also…..

Lack of Inventory- Demand for products here is way up and factories – even the ones that are sufficiently staffed- are struggling to get products to market. And a big reason is it’s harder to transport the products here.

The freight companies, which are already a quasi-cartel, got caught by the demand rebound as well. They cut capacity like everyone else in early ’09 and have struggled to respond. They also set their own rates which manufacturers have no choice but to pay. So the situation now is like heading to rush hour with not enough vehicles available to get everyone home. Space on the existing vehicles - i.e. boats that get the stuff here - is scarce and a lot more expensive.

This creates issues for industry suppliers with diversified product lines because when things are tight, core products come first and secondary offerings get kicked to the back burner. Product shortages right now are the worst I’ve seen them in 20 years of doing his.

The Cotton Problem- not a China specific problem – this one is worldwide. There’s a shortage, manufacturers cannot buy yarn, so we're seeing inventory problems and price increases since the Spring of close to 20% on cotton products. Further, lots of wearable suppliers now put out their new catalogs in August vs. January, so they’re faced with having to project where prices will go over the next several months, and their guess is as good as anyone else’s. It’s not a great way to have to run a business with high overhead.

So what does this mean to you, the buyer?

• Production lead times are increasing.
• Your first choice for products may not be available – which creates even more difficulty if you’re in a rush or deadline situation.
• Prices are heading in the wrong direction
• Your duties for ordering products for client events may be getting a whole lot harder.

What can we do about it?

• This is just a personal opinion, but in a situation like this, Geiger’s buying power and industry contacts are more valuable than ever right now. Due to the regular communication that we require of our Gold and Silver level production partners, we’ve got our finger on the pulse of inventory levels and production times from the best suppliers in our industry. Take advantage of our advantage.
• Consider ordering earlier or if there’s an ongoing need for particular products. Also think about ordering extra. That purple bag that’s available today may not be in stock 3 months from now.
• When planning, include 2nd, 3rd and even 4th options in case products are out of stock.
• If you can give me a heads up into what you’re considering, I can help with planning by checking into item availability and projected inventory levels right now.
• be very careful when ordering products from smaller manufacturers (this applies to me as well). The big suppliers have a major advantage right now because they can order from Chinese factories in higher volume which will demand the factories attention well ahead of suppliers ordering smaller volumes of items.

Bottom line, our industry's reliance on China forces it to ride out this storm because that country's ability to manufacture promotional items cheaper, faster, and with much better quality than countries like Vietnam, Cambodia etc still makes them the desired long range partner of industry suppliers. For the time being, no one sees that changing and ultimately the situation will improve. The question of course is when?

Also, it's good to keep in mind that American suppliers don’t have to deal with these issues (except the cotton one) so for items where these vendors are price competitive – like Frisbee-style flyers, cups and bottles and of course calendars, they’re the way to go.

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