Tales From the Secret Shadow Market

March 11, 2009

The story used to be, "Take me to your factory," when retailers wanted to bump their U.S. middlemen and go direct to the source, usually in China or India. The result was something out of a soap opera love triangle, with the U.S. supplier in the role of the spurned lover as the retailer and factory hopped into bed together (or bath or windows or whatever). Sometimes it even happened as the supplier watched. The hurt of it all.

While that scene still happens, it has evolved into something out of Desperate Housewives, with off-shore manufacturers who have successful and profitable U.S. retail programs through their relationships with U.S. vendors, appearing at this market all gussied up mostly in temporary showroom space — and looking to sell direct. They were hiding in plain sight, but they acted like none of their supplier-partners would notice.

Well, maybe. But it’s hard to imagine they wouldn’t be noticed, particularly when you could see them chasing an occasional independent sales rep down the hall.

One reason, explained one of the newbies, was the margin pressure that rolled backward toward them after profit-strained retailers demanded concessions of the wholesalers, and the wholesalers pushed the cost-cutting back to the manufacturer. Those factories do it all on the cheap anyway, goes the reasoning, so why not take it out of their hides?

What a shock that some of those off-shore guys have started pushing back.

But before you go start complaining about the inhumanity of it all, consider that this behavior — at least in the broader sense — is nothing new for the home textiles industry, which has always had a penchant for slow, painful self-torture. The complaining used to be about the folks in the next showroom knocking off your designs, or the guys down the hall undercutting your price. (Now those were the good ol’ days!)

So now, instead of being just a few steps away, the bad guys are a few thousand miles away. But if you can cut a good deal with them, maybe they’re not so bad after all.

Posted by Brent Felgner on March 11, 2009 | Comments (3)

December 21, 2009

In response to: Tales From the Secret Shadow Market
Alan Lloyd commented:

Let us remember, that it was Retailer Sam Walton, who initially went to China, and helped the Chinese set up their manufacturing business.

May 6, 2009

In response to: Tales From the Secret Shadow Market
Norman Afzal commented:

These relationships are put to test when mills cheat on their newly found lovers. Claims and rejections pile up and the retailer often finds it better to have someone else deal with the mills overseas. I am in Pakistan, dealing with various mills. My customers know the mills but dont get involved because it is better to have some one like me to take care of daily business overseas. This has proven fruitful to all three. Mills cant cheat so they dont cheat. I get the work based on my abilities to get the best price and even better goods. My customers enjoy a smooth ride and earn good name for themselves, not to mention fringe benefits like extra work and more money in the end. Retailers do deal with the mills directly but always leave some business for US based supplier because he is a one stop shop with money back Guarantee. Sweet. And everyone lived happily ever after.

March 17, 2009

In response to: Tales From the Secret Shadow Market
Henry Burney commented:

The idea that the supplier's customer, the retailer, going direct to the overseas manufacturer is nothing new, nor is it endemic to the home furnishings industry. As a domestic manufacturer of fiberfill and pillow forms, how many times do we get phone calls from our distributor's customers trying to skirt around the distributor in order to get a better price? How many times have customers installed their own equipment when the need for our products became large enough to justify the expense? We all seek the best price, lowest cost in order to maximize our profits. After all, wasn't that why manufacturers ran to China and India?