By Andrea Lillo
Though many companies are probably happy to see 2008 end, their outlook for this year remains challenging.
While former hot-button topics such as raw materials costs may have subsided, others have grown. Struggling retailers looking for an advantage continue to put pressure on vendors regarding pricing. Meanwhile, unexpected concern for the year is that Chinese lighting factories are closing earlier and longer than expected to celebrate the New Year.
Manufacturers exhibiting at the International Lighting Market in Dallas said success in 2009 will require lots of planning, sticking to basics and holding on tight until the economy gets better.
“Now, business is so tough,” said Ken Kallett, executive vice president of Dale Tiffany. The previous issues of raw material shortages, the currency exchange rate and others “have seemed to die down,” he said. “Now it’s about competitive pricing.”
“Business has been ugly and there will be more of that” in the new year, said Lee Schaak, chairman of Adesso. The rising costs of raw materials “killed us in 2008, plus the cost of labor in China went up 40 to 50 percent.” But material costs and currency seems to have stabilized, he said.
The recent retail turmoil just adds to the pain.
“The industry is changing,” said Brad Smith, chief executive officer of Elk Lighting. “You see a lot of redundancies in retail. It changes the landscape of many industries, including ours.”
Mass retailers are “getting hit and independents are getting hit harder,” Schaak said. “Sales are getting aggressive out there.”
With 2009’s year of the ox celebrations beginning next week (Jan. 26), manufacturers found that Chinese factories have shut down for longer stretches of time than previously. While Chinese employees usually take the week before and after the Chinese New Year to be able to travel back home, Kallett said, “This year we’re hearing about factories closing for five weeks.”
Smith said he recently heard that the train station for lighting district Guzhen, China, saw 40,000 more people a day traveling through to go back home than usual. Factories closed for Chinese New Year won’t reopen until the beginning of February, he said, “But the question is, how many people will come back—employees or employers?” He said he read that 10,000 factories closed in China last year, and 1,000 of those were in the lighting industry.
“I believe we’re headed into a deflationary environment,” Smith said. “Profitability and manufacturing are weak right now.”
Though raw material costs may come down, companies are now also dealing with rising labor costs and production standards, such as paying for overtime, he added. Though some companies will increase prices in January, he expects in general that “Maybe a company won’t decrease prices on existing products, but when they price new products, they will price accordingly.”
Elk Lighting placed its orders in October and early November to account for the period of factories shutting down, Smith added.
Murray Feiss works 12 to 18 months out, said Pamela St. Martin, vice president, product marketing, and is able to plan for Chinese holidays far in advance. With the entire industry dealing with labor issues and government restrictions in China, the key is “partnerships and working together” with the factories, she said. Murray Feiss works with several factories, and is in joint ownership with one.
Dale Tiffany knew about factory schedules in advance and planned ahead, Kallett said, front-loading inventory for the first quarter. Business is so tough now, so “We’re looking at supporting our current account base as much as we can through inventory, price deals” and such, he said.
Dale Tiffany had a decent year in 2008, Kallett said, as the company is not tied to lighting showrooms or builders like other lighting manufacturers. “We have a good brand name, and the consumer goes to names that they know and trust. We always do better than the industry average in times like these.”
Kallett said that Dale Tiffany, which is celebrating its 30th anniversary this year, will be introducing about half as many products as usual at Dallas. “Everyone still wants new product, so it’s important to have new product,” he said.
Feiss has been more selective with what products it brings to market, St. Martin said. “Buyers will be cautious, and ask, Is this a ‘wow’ piece?” One new collection will be Druid Hill, a transitional, geometric group that has a soft, warm contemporary look. “What’s driving the consumer today is self-expression,” she said. People “are living with a variety of styles,” and the rule of having all traditional or contemporary items in the home no longer applies.
Elk—coupled with its Landmark division—will show 550 new SKUs at the show, “One of the largest releases we’ve ever had,” Smith said. In addition, contemporary design “is even more popular than a year ago,” he said. “I’ve always been told during rough economic times people want traditional. But the trend now is very transitional, more light, airy designs—it is bucking the trend.”