October 2011 Newsletter

The brief ‘Indian summer’ last week gave the whole country a respite from the prophecies of gloom and despondency being constantly delivered via the newspapers and television. It was a pleasure to see people looking happy and the garden centres full of customers taking advantage of the good weather. Over the past few weeks we have taken the opportunity to attend a number of financial and economic seminars, where leading economists and financial analysts have presented their informed opinions on the state of the global economy. Virtually all of them predicted that the next year will be challenging for many countries but they did confirm that they felt the actions being taken by the UK government in trying to reduce the deficit were in the best interests of our country. A number of them questioned the gyrations being experienced in the world stock markets. In the Eurozone, they firmly believe that Greece will default on its debts but also said that this had been fully priced into the market. The movements in the European stock markets are being exaggerated by computerised trading and not by real changes in sentiment.

When we get into a discussion with businessmen and officials in China over world economics and domestic consumption they cannot understand how we were ever allowed to purchase goods which we could not afford resulting in so much personal debt.  Debt is against the principals of those we have spoken to in China and Vietnam.  These principles are clearly old fashioned but who is to say after what we have experienced over recent times that they are wrong.

Once again as seen in 2008, businesses worldwide have decided to operate a policy of destocking in order to preserve their cashflow. The view of the experts is that this form of cashflow preservation will actually be self defeating as many consumers purchase on impulse and if the goods are not readily available, the sale will be lost forever. With interest rates at record lows the costs of holding stock are lower than they have been for many years. This form of short term housekeeping is viewed as false economy and a far more effective way of reducing costs is to examine every aspect of the organisation to see where improvements in efficiency can be achieved thereby leading to reductions in operating costs and long term savings.

China which still has a very positive trade surplus is being attacked by the USA for holding its currency at levels which are viewed to be too low verses the US Dollar and thereby giving Chinese exporters an unfair advantage. The US is now threatening to impose tariffs on Chinese goods to ensure that they are sold at what are believed to be competitive prices. All of this rhetoric and positioning appears to be a little too late and false as it was the USA whose domestic economy based its massive consumer boom on the back of cheap goods from Asia.  There is no question that export demand levels have fallen in Asia but the point being missed is that the tiger economies are growing at an unbelievable rate as literally millions of new consumers are joining the local markets.  The fate of the Western economies are no longer as important as they were 10 years ago to the prosperity of the Asian countries.

As forecast over the past few months product costs have continued to climb even though demand levels have clearly fallen.  We have taken issue with our Suppliers throughout the world over any increases but when you take the time to discuss the reasons, it becomes clear that the majority of the upward increases are being forced upon the Suppliers by government intervention.  In India for example, there is little or no increase in labour costs but a number of the key raw material prices are controlled by the government and as they see the decline in the growth levels of exports they are making up for the lost revenue by increasing the price of oil which they control.  One of our factories now pays as much for the road transport of the goods to the docks, as the sea costs to bring the goods to the UK.

The factories do not want to compound the economic problems that we are facing and realise that if all the cost increases were to be passed on to us the volume of business would shrink even more so they are trying to pass on only part of the increase in costs. However, Chinese producers are dependant on the value of the US Dollar. If the dollar falls any further against the Chinese Yuan, prices will have to increase.  It is forecast that this will happen by the end of this year and we are already being warned and given notice of impending price rises.

It is worth mentioning that the Asian factories are not immune to the economic problems of Europe.  Many built up their success in trading with Europe by taking financial risks which are now starting to hurt them. Just as the banks in Europe lent recklessly to the Greeks and now are unlikely to get full repayment, factories also relaxed their financial controls. With European companies now defaulting on their debts, the factories have big problems as they are not being paid for goods which they have shipped or in some cases delivered. The response to this over the past few months has been for them to insist on deposits when placing orders.  This is a double edged sword in that, on the one hand they will be able to purchase raw materials in advance but if they have financial problems these funds will be used to cover up problems. There has never been, in our opinion, a more difficult time to deal with overseas suppliers. It is imperative to have close contact and regular meetings with the management. There is also no substitute for visits to the suppliers as you can actually see what is happening first hand and draw your own conclusions. We have doubled over the past 12 months the number of factory inspections to guard against these problems.

As companies in the UK have begun cost cutting exercises, we have experienced a noticeable increase in the uptake of our sourcing services.  We have always promoted these services but in the current economic climate they are more relevant than ever.  We have personnel stationed throughout Asia, ready to source products to specific client specification.  We have sourced in the last few weeks products ranging from air conditioners to sliding doors and hair straighteners.  We still offer our ‘one stop solution’ to importing products and even in the current climate are able to provide full credit facilities to customers (subject to credit ratings). This enables the businesses using our services to purchase their goods at very competitive prices without affecting their cashflow.    

It is worthwhile highlighting some of the new product successes of the past few months:

Outdoor Products

• Chicken coups and small animal houses.
• Promotional reclining chairs
• Cast Aluminium garden furniture – cast aluminium chairs with textaline seat sections
• Painted Acacia Wooden furniture
• Ryceco Heat Logs – eco friendly
• Sledges and snow shovels
• Greenhouses – as showcased at Solex

Indoor Products

• Acacia indoor furniture
• Contemporary Sofa beds range
• Wood burning cast iron stoves
• Directors chairs
• Sliding doors
• Air conditioning units

In addition to the above our contract department continues to expand.  We are now able to offer in addition to our regular lines, office desks and chairs and banqueting furniture both in traditional and contemporary styles. Our products have been specified for the forthcoming 2012 Olympics. It is in the contract area where we find that our sourcing services are being utilised more and more by distributors.

If you are interested in any of these products please do not hesitate to contact us and we would be delighted to assist you with your particular requirements. Our showroom is conveniently located near junction 4 of the M1 and we are open every day from 7:30 AM to 5:30 PM. Please call one of our sales executives who would be delighted to meet up with you.

Please note that we will be commencing the first of our autumn buying trips to Asia next week and if you have any sourcing requirements that you wish us to start work on immediately this is the ideal opportunity to arrange for your product managers to contact us to discuss your particular requirements.  It is worth reiterating that all enquires are dealt with on a totally confidential basis and any products sourced are never offered to any other customers.  This is a key part of our customer charter.