Chinese Rug Prices Expected to Rise

High Point, N.C. — As the Chinese yuan strengthens against the U.S. dollar, and with labor and raw material costs rising, there is growing upward pressure on wholesale prices of products made in China, including that country's booming rug business.

Rug importers showing here at the High Point Furniture Market said that higher prices will have to be passed along to retailers, but just when is not clear. Both hand-made and machine-made rugs are being affected.

John Feizy, president of Feizy Rugs, said even the efforts by the Chinese government and exporters are not keeping the yuan from rising. "It looks like the yuan will settle at about 7 yuan to the dollar, and now it is 7.5 to 8 yuan to the dollar," Feizy said. "When we are talking about very tight profit margins to begin with, that puts a lot of pressure on wholesalers to raise prices, much as we do not want that to happen."

"In addition to the appreciation in the currency, the government has cut some subsidies to the manufacturing sector," said Hari Tummala, executive vp of Kas Oriental Rugs.

As free enterprise spreads and China becomes more industrialized, the work force is also changing, according to a number of rug executives. People who once worked in carpet factories are now moving to other jobs that offer better pay and working conditions.

"Chinese rug producers are extremely concerned about such issues as market share and keeping people employed," said Charles Peck, president of Trans Ocean. "They don't want to raise prices either."

"China has experienced incredible growth in many manufacturing sectors," noted Alex Peykar, a principal of Nourison. "The labor force is beginning to be squeezed. Good people are jumping to new jobs." Peykar added, "There's a lack of consistent worldwide demand for hand-knotted rugs," pushing many workers to leave the looms for more steady employment.

There seem to be no simple answers.

"It's not a matter of switching our sources to India, for example," said Peck. "We buy rugs from China because they have a certain look. India production also is important to us, and so is Belgium. Every country produces a certain look that is important to our product mix."

Rug importing executives are hesitant to predict how the China situation will play out. But it looks like the market is in for small price increases.

"The next few months will be crucial to the Chinese rug business," said Tummala. "For the long term, it's difficult to see how the industry will adapt to the new marketplace."

"We are waiting for a little business momentum to build to make it easier to pass along," said Leon Capel, a principal of Capel Industries. "If you absorb prices, it gives your customers the impression that your products were overpriced to begin with."

"When you hold the line on price, you either take it out of profits or out of product," added Peck. "We don't want to compromise our quality."

This report was supplied by Lissa Wyman, rug editor for HTT sister publication Furniture Today.