Media people who cover industry events and statistics sometimes amaze me at how they interpret what’s going on. The big concern, one that Americans in general hear about today is that China, with their massive growth and appetite for all things consumable, is going to flood the market with all types of products overwhelming the American market. In particular, relative to our perspective, is the concern for an influx of carpet to the US market. I’m going to tell you why I don’t think that’s going to happen and in fact, how much opportunity I think there is going in the other direction; that is for US producers to carpet the market in China and developing markets in that part of the world.
The capacity for carpet manufacturing in China is approximately 75 million square yards per year. In the US the capacity is in the billions. China can’t, at this point, supply their own demands for carpet much less those of any other part of the world. Their domestic market is growing faster than they can supply it. Capitalism, in whatever way you want to view it, despite being a Communist country, is alive, well and growing in China.
Carpet manufacturing technology belongs to America and primarily in two locations, one of them very centralized. Southern California, where carpet is of very high quality and extremely fashionable and Dalton, Georgia, “The Carpet Capital of the World,” because it is just that. All of the brains, technology and economies of scale for producing carpet exist in Dalton, Georgia. The uniqueness of this distinction cannot be discounted. Additionally, almost all of the equipment for making tufted carpet is centered in the Dalton area. The infrastructure for accommodating the manufacture of carpet is in Dalton. Dalton is carpet and the mindset to produce it is innate in this area – it is the epicenter for textile floor covering materials in the world. From Dalton and its associated distribution centers and labyrinth distribution network, a carpet can be at the door of the dealer, if it’s in stock, in as little as a day’s time.
The challenges faced by China in the US market are paramount; quality control, distribution, rapid delivery, complaint handling, quality of the product, style and fashion.
Quality control is hard to control since China is essentially a start up market. Checks and balances are not perfected and the product is not governed by any set of standards as it is in the US market by any formal organization like The Carpet and Rug Institute, GSA or FHA .
Distribution is a huge challenge. The saying, “on a slow boat from China” is epitomized by product coming from China. No one is going to get anything fast from China. A deadline for installation would only be a suggestion or a wish with carpet coming from China. In the fast paced world of carpet no one is going to wait very long to get a product they want by a certain time. To make selling product economical distribution warehouses would have to be set up and product styles stocked for rapid deployment to dealers or end users. No US carpet manufacturer is going to stock product from China to sell and distribute. Distributors, who have been suggested as dispensers of Chinese carpet, cannot adequately service the entire marketing area. There would be no rapid delivery of a specific product anywhere in this scenario. The logistics of distribution are daunting to say the least for Chinese carpet and for commercial carpet, as this point, near impossible.
Complaint handling and product quality are two categories that really create challenges for carpets from China. Filing a claim with a Chinese carpet mill, in my opinion and by general industry consensus, would be very difficult to say the least. Who do you call, how, when and how fast could you get something done about your concern? What type of technical help could you get? Where and how would you send the product back? Could you involve someone from the mill claims department and how would you do that? What if there is a quality problem with the product? How fast could you expect to get help – certainly not the next day. On top of all this, the products China is set up to manufacture at this point are for the most part, lower quality, higher volume runs. Claims would be a logistical nightmare and they are the one category that really casts a veil over imported carpet from China.
Carpet from China offers no distinct advantages, special features or unique characteristics to give in any special appeal or create and demand. Since labor is such a small percentage of US carpet manufacturing and pricing, somewhere between 5 and 6%, there is no labor savings advantage for purchasing Chinese made carpet. Price is not a viable reason to buy here.
Another Interesting Point
A program we’re working on for a client through one of our divisions is called bundling. This concept will shed some light on the issue and concern of obtaining carpet made in China. Bundling is a term used to describe the containerization of materials and products used in the construction of condominiums, apartments, hotels, etc. Cabinetry, furniture, wood flooring, fixtures and many of the other items used to construct these facilities is supplied in container form to builders and developers in the US from China. These materials are less expensive than buying in the US and the container is bundled with all the needed materials to outfit the project space – in essence, an outfitted, ready to install, package. The only thing they can’t get and don’t want in this package is carpet from China. There is not the diversity of product, quality or service that is required for this concept. The people putting this program together are requesting product packages of US manufactured carpet to bundle with this program. The point is that all the other materials for a build out are available and economically feasible to supply from and by Chinese industry, except the carpet. This is not going to change any time soon in my opinion. In fact there will be strains placed on the Chinese suppliers for all these products in the not to distant future, in my opinion, and I’ll tell you why.
US Opportunity
The law of supply and demand dictates product and service movement in the marketplace. “You want it, we’ve got it, you pay.” China is experiencing explosive growth. Primarily that growth is in the middle to upper end segment of the market. As China develops the Chinese people, and there are 1.3 billion of them, will want and be able to afford better quality and name brand products. The Chinese, as does the rest of the world, regardless of what the media or politicians may say, look up to or at America as a source of name brand products, cultural association, style and fashion. The real estate in Chinese cities is in great demand. Construction of massive towers for living space and business locations is growing like a weed in all segments; corporate, hospitality, government, transportation, health care and education. With all this demand and the lack of higher quality carpeting to use in this space the best place to get it, and the only place to get the real quality products for commercial application in volume, is from the US. The opportunity to supply our products to the Chinese and the rest of the Far East is greater than what any fear should be for products from China and other developing and expanding nations’ products infiltrating the US market. China is a monster of consumption in a still developing nation. It is impossible for Chinese industry to fulfill the needs, demands and desires for high quality products and services more consumers want. The key word here is desires. The Chinese consumer, an exponentially growing number of them more affluent, can now afford better quality products and brands – and most importantly, they want them.
American products in China won’t be price conscious brands but quality brands and some of the branding may have to be developed for the Chinese market. With all the excess capacity the US carpet industry has there is no reason for us not to be able to service the new demands of the more affluent Chinese market. I see more opportunity for us there than for them here relative to this aspect of the market. As foreign industry’s have built plants in the US, particularly automobile plants, we could build carpet manufacturing plants in China that could conceivably be a lot more successful than they are in our own country. Especially in the high end market which generates better returns and where you can afford to build more quality into the product which will generate fewer claims – this means higher returns on product sold. In addition to this, the opportunity to train and work with or establish installation services is, again in my opinion, astronomical.
Back to the bundling concept, a recent conversation with our client who is working on the bundling program generated a surprising remark. He said that a lot of containers are “dead – heading” back to China on ships. “Dead – heading” means the containers are empty on the return trip. Why shouldn’t they be loaded with high quality carpet from the US? This is an area to be explored and capitalized on that can materialize into a burgeoning business if it is worked and nurtured.
My belief is that there is tons of opportunity for US carpet manufacturers to sell their products in China. With the right relationships and a feel for the market and a handle on marketing, which we are very weak at here at home, inroads and successes in the Chinese market can be realized.
There is no question in my mind that no one can service the growing commercial carpet market in China better than US carpet manufacturers and the opportunity to do so is there. Woven carpet manufacturers are already establishing beach heads of manufacturing in the Far East why shouldn’t tufted manufacturers do so as well? Who else has more knowledge, technology and ability than US manufacturers? It would be a shame not to aggressively pursue the obvious opportunities for growth that exist in the Chinese and Far East market.
Growth for US manufacturers in the US market is limited for carpet. This is one main reasons Shaw and Mohawk are pursuing the opportunities of hard surface flooring. That they are acquiring suppliers, manufacturing their own components and accessories such as carpet cushion is expansionist in the flooring industry. Again, with all the capacity available and technology, there is no reason not to be the big gorilla in the world floor covering market. If the same ambitious initiatives are taken to develop into world manufacturers as have been taken to become domestic giants, the sky is the limit for US carpet manufacturers. Another element is that it doesn’t have to be the biggest companies that become the most successful; it can be smaller commercial manufacturers with the desire, ability and persistence to penetrate the Chinese market. They could even become the new giants in a new market. I think this is an exciting opportunity for the US carpet industry and flooring industry in general.
Some people look at things and never see the opportunity that lies within the challenges that most are lead to believe exist – the negative perspective. The most successful people are those who seek and find opportunity in what others profess are the negatives of their industry – the positive perspective. The most successful people are generally not the most intelligent of society but they are the ones with the most guts and the belief that they will and can succeed no matter what. History, past and recent, proves that true – just look at companies like MicroSoft, Google, FedEx or Star Bucks for example. The US carpet industry can prove that is still true in emerging world markets. Where do you feel you can fit into this unequalled opportunity?
MORE SUCCESS FOR UNIVERSAL TEXTILE TECHNOLOGIES BioCel BACKING
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Author – Lewis G. Migliore – The Commercial Flooring Report
LGM and Associates – The Floorcovering Experts