Some furniture retailers say price hikes could be ‘inevitable’ amid supply chain issues


RISE IN COSTS AND LONG DELAYS

Describing logistical delays as “the most pressing issue”, Commune’s Koh noted that the cost of shipping a container from China to Singapore has soared to US$3,500 from around US$500 before COVID. -19.

Shipping costs to Europe also increased about eightfold to US$16,000 during the same period.

The impact goes beyond the costs. Container shortages and port congestion also mean that delays of weeks or even months have become increasingly common.

“Today may be the day your container is supposed to leave, but the ship is delayed so it’s pushed back to next week. Next week is coming but there is still a delay. Another week comes, the same thing happens,” Mr Koh said, adding that this has caused a “big disruption” in the fulfillment of customer orders.

The supply problem is compounded by production problems as regional COVID-19 outbreaks last year shuttered factories in countries including Vietnam and Malaysia for several months.

A power supply crisis in China, which also prompted orders to curb activity or close factories in September, further disrupted supplies for furniture retailers.

Online furniture brand BedandBasics, which has factories in Malaysia and China, said the disruptions happened “one after another” and “resulted in more products being out of stock and for a longer term”. The longest delay she experienced lasted six months.

Such delays are particularly damaging to online brands, he added, which is why the company offered “goodwill discounts” and “no questions asked refunds” to customers who urgently needed their orders.

“Because we don’t have a physical presence, it’s all about brand reputation and word of mouth,” said BedandBasics co-founder Ryan Wong.

“We want to give customers confidence that if they buy something from us, they’ll get it. If the delays get too long, we don’t want them to worry either.

Unfortunately, supply chain bottlenecks don’t seem to be going away. Shipping rates remained high even after the holiday season, retailers said. New outbreaks of COVID-19 in several Chinese cities have also added to the unpredictability of manufacturing operations in the country.

At the same time, retailers said they were paying more for materials amid rising demand. Metal prices, for example, jumped 40-60% last year, according to Koh.

Costs in other areas, such as labor, rent, utilities, and even digital marketing, are also rising.

As a result, furniture retailers continued to see slim margins, even as work-from-home trends prompted people to spend more on sprucing up their homes, Wong said.

“Costs have increased exponentially. With that and the supply constraints, we haven’t really been able to grow as much as we’d like in the last couple of years,” he added.

“Even a big company like IKEA with an efficient supply chain had to raise prices. So for the rest of us, a price increase is inevitable.

WALK A FINE LINE ON PRICE HIKES

But raising prices isn’t an easy decision, retailers say.

For BedandBasics, being affordable has always been its biggest differentiator, Wong said. The brand has lowered the price of its products by more than 30-50% as it saves money by operating online and bypassing distributors to source items directly from manufacturers.

Last year, it raised prices “slightly” by around 5% to cope with soaring freight rates. It may have to raise prices again if cost pressures persist in the longer term, although the company said it is considering other solutions as well.

These include investing in technology to increase warehouse efficiency and better understand consumer demand. It is also looking to diversify its supply chain by securing partners in other parts of the region, such as Indonesia.

“We will try to absorb most of the costs and try to do all these things before we have to raise prices as a last resort,” Wong said.

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