| HIGH POINT, North Carolina
HIGH POINT, North Carolina Furniture maker
Carol Gregg got some puzzled looks when she went looking for a
U.S. factory to make her Chinese antique reproductions.
"They said, 'Honey, don't you know everyone is going to
China?"' Gregg said. "It took a while to get people on board."
She used to ship American wood to a factory in China, which
would make the furniture and then ship it back to the United
States. Three years ago, even before oil hit $140 per barrel,
she decided that was "really silly" and decided to move
manufacturing back to the United States.
Now, a network of small U.S. factories produces 10 or 20
units at a time for her company, red egg resources, based in
High Point, North Carolina. And other furniture makers are
coming to her for advice on how to leave China.
Since 2000, scores of U.S. factories have shut down as
furniture companies shifted manufacturing to China in search of
lower costs. But as rising inflation drives up factory wages in
China and high oil prices make shipping costlier, some
companies are considering moving back home.
Like Gregg, many furniture makers are finding it hard to
return, primarily because of steep factory start-up costs and
lack of skilled labor. The credit crisis that began with
failing mortgages but has now led to tighter terms on virtually
all loans also makes it tougher to finance a new plant.
However, the cost differences are narrowing, particularly
for smaller companies that never could match the big players'
negotiating power in China. Gregg said three years ago, it was
about 40 percent more expensive to manufacture in the United
States than in China.
"Today, with inflation in China and ocean freight, we're
about even," she said.
Ikea, the Swedish retailer known for its low-priced,
flat-packed furniture, opened its first U.S. manufacturing
plant about 50 miles north of High Point earlier this year. The
Danville, Virginia, factory makes book shelves, coffee tables
and side tables for sale at Ikea's U.S. and Canadian stores.
"The most expensive part of the home furnishings business
is actually transport," said Ikea spokesman Joseph Roth. "For
us this (move) makes total sense."
Rebecca Smothers, the mayor of High Point, hopes others
will come to the same conclusion. The city, known for its
twice-yearly home furnishings trade show that draws tens of
thousands of visitors, has been hit hard by factory closures.
She said some European companies have expressed interest in
setting up shop here. The euro's rise to a record high against
the U.S. dollar this year has hurt European exporters.
But for many of the major U.S. manufacturers, China still
holds a formidable advantage on both price and infrastructure.
Paul Toms Jr., chairman and chief executive of Hooker
Furniture Corp (HOFT.O), said he was surprised by the swift
spike in oil prices and the pace of wage increases in China,
and was looking for other places to manufacture. The United
States was not an option for the company, which has shut five
U.S. factories in recent years.
"As we closed those plants, we sold the real estate and
sold off the machinery and equipment," he said in a telephone
interview. "The work force has dispersed, not only the hourly
workers but the supervision, had generally moved into other
industries. There's not enough need for skilled wood workers
for everybody to be able to stay in this industry."
"So it's not feasible even if we thought we could produce a
better value product here than we could in Asia," he added.
Instead, the company is switching some manufacturing to
other developing countries, including Vietnam, Indonesia, the
Philippines and Honduras.
TIME AND DISTANCE
In addition to cost, distance is also becoming an factor.
Jobi Blachy, president of upscale furniture makers Edward
Ferrell and Lewis Mittman, said one reason why his company
manufactures in the United States is speed. Custom orders would
take weeks longer if he had to ship them from overseas.
Blachy's customers spend as much as $26,000 for a dining
room table, so paying a bit more for U.S. labor is no big deal.
But even for lower-priced furniture retailers, which have scant
pricing power when demand is weak, distance is starting to
factor into the sourcing decision.
Alan Cole, who overseas the upholstery business at Hooker
Furniture, said retailers were increasingly interested in
domestic-made goods as a way to keep a tighter grip on
inventory when demand is unpredictable.
If they place a large order from China and the economy
remains weak, they may be stuck with the big stockpiles. And if
it rebounds, they could be too slow to stock up.
"Retailers are trying to figure out how they can buy more
products domestically and still not lose some of the economic
value that imports bring to them," he said.
"That's quite a shift in some of the retail thinking
because up until probably within the last year or two years,
the retailers were continuing to import more and more directly
from Asia and to be less dependent on domestic products."
(With additional reporting by Karen Jacobs in Atlanta)