What’s Happened to Gross Margin From Imports?
This is a question that needs to be asked because of some recent trends. Consider:
1. Production chases low cost labor. Where Japan and Taiwan were the centers before China, production is starting to move from China to other Asian countries such as Indonesia, Vietnam and Cambodia—as well as Mexico, Central and South American countries.
2. China will not guarantee price beyond the current purchase order in many cases. Inflation in China is at an 11-year high. Some clients are expecting product cost increases of 5% to 10% or higher in 2008. Energy and material costs are going up dramatically. New labor standards and environmental regulations are adding costs.
3. Complexity of the supply chain has greatly increased. Today’s multichannel companies need the people resources (internal or outsourced) in place to deal with the ever-changing production and supply chain.
4. Product lead times are lengthening. Many products’ lead times are 18 to 24 weeks or more.
5. Vendor minimums are high, which forces many smaller businesses to promote products for two or more seasons just to meet the production minimums. That can be every risky if it’s a new product and doesn’t sell well.
6. Transportation costs for imports are 6% to 12% of gross sales—and as we all know, fuel charges are rapidly pushing up costs. So there isn’t any relief in sight.
The bottom line is, when you look at fully loaded costs for imports, the combination of all these factors is stripping the gross margin advantage many imported products gave multichannel companies.
Curt Barry is president of F. Curtis Barry & Company, a multichannel operations and fulfillment consulting firm with expertise in multichannel systems, warehouse, call center, inventory, and benchmarking; Learn more online at: http://www.fcbco.com.