A blog for Asian furniture industry professionals offering invaluable insights, comments and ramblings about China business and importing home furnishings from China, with the occasional sidetrack into “life in China related topics.”
The well known upholstered leather furniture manufacturer Decoro, recently closed it factory in Shenzhen, China after encountering liquidity problems. More then 2000 workers lost their jobs which lead to protests. Eventually, the local government stepped in and paid two months worth of the worker’s back salaries. Yet over the years, this was not the first time Decoro was in the headlines and the table below charts some of the larger headlines over the past few years.
When Luca Ricci sold his first batch of leather sofas in 1998 he told the North American distributor they were made in Italy”
According to news reports, factory workers at the Italian-owned, China-based company went on strike to protest an alleged attempt by management to cut pay
The newspaper reported that employees alleged that 100 security guards wielding iron bars attacked workers after a Tuesday meeting with management over layoff payments.
The 968,000-square-foot plant set to open in May joins DeCoro’s 2 million-square-foot upholstery operation in Shenzhen, China.
Leather upholstery producer DeCoro has reached an agreement with China Construction Bank to provide capital for ongoing operations.DeCoro has been experiencing difficulties due to global business conditions and reduced access to capital,
Customers of Decoro include Levitz Furniture Company, Wickes Furniture,Jennifer Convertibles, Z-Gallerie, BEJ Wholesale and many others. Decoro was billed as “revolutionizing the industry” with quality Italian leather upholstered furniture being made in China and sold abroad for comparatively low prices. Note that both Levitz Furniture and Wickes Furniture are now out of business.
“Corso also indicated that DeCoro founder Luca Ricci, plans to reopen with a new factory in the near future, but had no further details as to location, size, capacity, and whether it will operate under DeCoro or another name. Ricci had not responded to an e-mail by publication time.”
For companies already faced with rising costs, tightening labor laws, and reduced government incentives, you have to wonder – is Decor fleeing to Vietnam? Brazil? (Decoro already has two factories in Brazil).
Experience of Investing in China
There is quite an interesting article on a Chinese furniture industry website www.365f.com about Decoro and its story, which I will reprint here (Chinese websites are not know for maintaining links, and I would not surprised if the article disappears due to poor site management). The author appears to be a Decoro employee. Its not clear when the article is written. Very interesting perspective….
Introduction
Investing in China, like in any other country, is not easy. There are many in which a company can invest in a country, all have positive and negative aspects, and there are always successful companies or failures.
Today I am presenting you the example of DeCoro, the way that Luca Ricci decided to operate in China, the developments of it and, from my personal point of view as worker in DeCoro, the history of this incredible company.
The sotry of DeCoro
As for many privately held company, the history of DeCoro is also the history of its President and founder.
Business idea of Luca Ricci
Luca Ricci has grown up and worked several years in his father factory in Italy, the name is Tre Erre. Tre Erre is a producer of High End sofas, producing mostly for Roche Boibois, a very high-end worldwide chain, of which Tre Erre was the biggest supplier. Luca has been President of Tre Erre for 3 years before creating DeCoro. During these years I had the brilliant idea and vision of understanding that the future of mass-market sofa manufacturing was moving out of Italy. So he looked for other countries where to invest and creste a new company. The strategic idea being that was of saving costs on manpower but invest in the quality of the materials, that in a mass-market sofa are among the most important thing.
Opportunity in China and the beginning of DeCoro
Luca was in informed at the beginning of 1997, that there was a group of Hong Kong investors, owing a small sofa manufacturing company in China, willing to sell 51% of the company to a foreign investor.
Luca together with other Italian people immediately went in China to evaluate the possibility and then Luca bought 51% of this existing company.
So DeCoro was born. But it was not an easy start. The existing company was a factory of around 100 workers, disorganized and with little stable business. First step was to send over a team of production managers, designers and prototypists to start creating appropriate models, develop them and teach the existing work force how to produce quality sofas.
It was necessary to recruit more workers, establish production procedures, organize different departments, and set up everything. At the October 1997 High Point Furniture Market was presented the first collection, but is only after the April 1998 High point Furniture Market the DeCoro receive the first order. 　　During both Markets Morty Seamans, owner and President of, at that time, a rising furniture Retailer, Rooms to Go, now the biggest furniture retail chain in USA, visited DeCoro showroom. Rooms to Go became the first customer of DeCoro and it has been since that first order, the biggest customer for us. Then other big retail groups started to buy and the company had sales of US$ 11 million in 1998.
Full ownership
But in that period started some management problems with the Hong Kongese parthers. They aimed to have short-term business plans and to make quick money. Luca Ricci wanted Decoro to become a leading manufacturer of upholstered sofas. He and the Italian Management had long-term view, keep producing quality sofas, increases capacity, establish durable relationship with its customers, and establish a worldwide sales network, with offices and personnel working directly for the company. These ideas of course had to be supported by investments and hard work.
Was heading home from a late night at the office, when the taxi driver keys me in on what just occurred. Surprisingly the Chinese media has said little even though its all over the news elsewhere. A friend texts me to tell me she heard about it from her friend in Germany who knew before her. In a strange way, this all symbolizes the conflicts, clashes and paradoxes which occur in China today and speaks to the lessons the west is yet to learn about China. Yes, you can rush into upgrade the hardware and build luxury six star hotels. But unless the software is upgraded as well, things can just as easily go up in smoke (literally and metaphorically). And quickly too. China may have Starbucks, but make no mistake – this is not Kansas and much lays beneath appearances.
On a side note, about a year and a half The Mandarin Oriental contacted us for assistance in setting up a gift shop in the hotel. While the German manager was pleasant and easy the deal with, the Malaysia gentleman we were dealing with was frankly a real pain in the butt to deal with (besides wasting our time). So… maybe it was Karma? Glad it was not our product that went up in flames…
I will be curious to see what the reported cause of this fire is but regardless of what’s reported I would guess there is a 99.9% chance this is fireworks related. China may have 5000+ years of continuous history (and even invented fireworks) yet they STILL have not figured out the obvious: that allowing thousands of uncontrolled, unsupervised, commercial standard fireworks (IE Illegal elsewhere) to be set off simultaneously across the country, in crowded spaces by individuals with no safety training (some with no education whatsoever) is a bad idea. Talk about growing pains… (For both China and the Mandarin Oriental)
On the last day of the holiday and fresh into the new year, some might see this as a very bad omen.
Furnitureindex.dk is a record of Danish furniture from the 20th and 21st centuries, containing searchable information about and images of more than 10,000 pieces of furniture. The record is updated and developed on an ongoing basis.
The search features are pretty comprehensive…. I did a search to see what was put out in Rosewood and got back over 1000 results.
If you are into contemporary furniture and you know the design is danish, its worth having a look at.
“A main issue, is customers understanding of these providers scope of business and their capabilities with the most common misconception is that these companies will take responsibility for getting your products picked up, packed and shipped out in good condition”
Most of us cannot be in China full time, yet its critical to have someone physically on-site who will inspect your shipment before it leaves. This is to ensure that a) the correct items have been picked up from your vendors, b) packed and loaded properly and that c) no items are left behind. Since many exporters are unable to maintain a permanent office in China, they logically often turn to packing agents to fill this void. Packing agents, freight forwarders and consolidators (theoretically) offer the following to their customers:
Unfortunately results are generally below expectations and mixed at best. And while there are a number of articles floating around on the internet which discuss freight forwarding/consolidation and even fewer on using packing agents there seem to be none which discuss the unique aspects of packing and exporting antique furniture, particularly Chinese antique and reproduction furniture and handicrafts.
High Volume / Low margin
In all fairness, many of these companies complain about the slim margins on each packing job. Therefore most packing agents in China must work on a high volume/low margin business model with occasional extra profits earned via supplier referral fees and commissions as well as from embassies and private individuals whom are charged a premium over fees charged to normal furniture/decor importers. Their core customer base will typically consist of smaller shops, retailers and wholesales without a permanent trading company with a valid export license set up in China. Many packing companies, particularly the larger ones may have been spin offs of military operations from the 80ies and 90ies when the Chinese central government encourage the military to set up business to supplement their budgets. When the Chinese military became a bit too successful in making money, in the late 90ies the government ordered them to reverse track and detach themselves and many of these entities became private business still operating today.
Smaller companies may export a few hundred containers a year, with the larger ones exporting upwards of a thousand or even more in a single year. This, along with much of their client base consisting of smaller independent direct furniture importers, means that regardless of the number of orders you are able to place, its highly unlikely your business will be doing enough volume to be seen as “an important customer.”
“Regardless of the number of orders you are able to place, its highly unlikely your business will be doing enough volume to be seen as “an important customer.”
Despite claims to the contrary, many larger factories will also outsource their exporting to these businesses, even if the actual packing itself occurs at the factory using their own staff. International moving companies such as Asian Tigers or Sino Santa Fe have also been known to outsource a portion of their packing work to these companies, as do embassies sending staff home at the end of their contracts. Fees will typically be based on the container size and include customs inspection, relic inspection, packing, loading and anything else which is needed to get your order out. Be aware of additional charges for heavy items and wooden crating.
Forget Forklifts! Six workers are easier to operate…
My first visit to a packing facility quickly dispelled any visions I might previously have had of climate controlled facilities, sophisticated inventory controls or even forklifts for that matter and facilities are rudimentary a best. Sophisticated DHL like computer systems are non-existent here. Concrete covered brick walls, tin roofing and lots of dust are more accurate impressions.
Pickups are typically with a blue domestic flat bed where items will be piled up onto the the truck, with woolen blankets in between the pieces to minimize damage. Pay attention to this as those nicks, dents and scratches in your order will initially start here. From there items make their way to the warehouse to be again, piled two to three meters high in different sections of the warehouse, often divided with corrugated cardboard in between to separate different customers orders from getting mixed up. Which of course, is how your missing rice pot, lamp or other item got lost. Sometimes this works in your favor as you may be the recipient of that missing rice pot, lamp or other item.
For furniture items typically they will use three layers of packing: 1) Bubble wrap for shock resistance 2) Foam wrap or foam sheets and 3) Cardboard.
Small items will be packed inside inner spaces of cabinets and other un-used areas. When it comes to loading, six workers loading a packed cabinet by hand into a container is not uncommon to see though in all fairness, optimized container loading is an area where these companies succeed. Much like fitting together a 3d Tetris puzzle, pieces are fitted into spaces so as to prevent shifting in transit and to make use of wasted space. Small items can be co-packed within cabinets and ACF has overseen orders with more then ten thousand items large and small.
Optimized co-packing involves fitting together items like a puzzle
to both maximize space and prevent load shift.
Most warehouses will also have an attached “for sale area” where furniture, lamps, stone statues or other items are up for offer, theoretically for last minute purchases or to fill an extra cubic meter or so of space. Take note of this area – despite what you are told, this is normally lost product from prior orders (hopefully not yours), items which never made it onto the paperwork or product left by customers in lieu of unpaid fees (again if there is an unpaid bill it normally involves a dispute). A separate troubling trend is some packing companies in the antique furniture industry have set up their own websites to do direct furniture sales to overseas individuals, thus in effect both collecting money from your business and simultaneously potentially selling to your same customer base.
What you see may not be what you get
A main issue is customers understanding of these providers scope of business and their capabilities with the most common misconception is that these companies will take responsibility for getting your products picked up, packed and shipped out in good condition. Many importers believe that sourcing suppliers and selecting product is where their job ends until the container arrives on the other end, with the critical portions in between left to the packing agent.
What these companies do not provided is true vendor management, inventory control, independent oversight and responsible care and handling of your shipment – which in the eyes of the overseas customers is primarily what they believe they are hiring them for.
Despite any such claims made their core abilities lie mainly in providing trucks for pickups, labor for packing/loading, back-office staff for rudimentary documentation and trading support and Chinese stye “guanxi” relationships with China customs. Essentially these companies really do little other then loan the customer their export license along with a bit of hard, manual labor. This may be one reason why packing agents number in the 4 digits in Beijing alone, as warehousing in China is rudimentary (and not costly), manual labor is cheap and cardboard packing is not a sophisticated task. What these companies do not provided is true vendor management, inventory control, independent oversight and responsible care and handling of your shipment – which in the eyes of the overseas customers is primarily what they believe they are hiring them for.
A reader of my last Sourcing Strategies Blograised some valid points in regard to China’s furniture industry. The reader noted that surface level observations seen at the September Shanghai home furnishings trade show were just that — surface level observations. “Anyone who is doing business will tell you — things are rarely as they appear here,†the reader wrote. “One of the hardest hit of all industries here in China has been furniture, particularly for furniture exporters, raw material sellers and anyone else attached to that industry.â€
In the comments section there are also quotes another readers who (mostly) shares similar opinions:
After buying from China for 6 years and going to trade shows every year, my best advice would be “don’t believe their numbers.” We work with some of the largest manufacturers in China and the “exports are up” story is not the same as the one they are giving. On top of it, compared to previous years, the traffic does seem slower. I remember the first year my business partner went, they didn’t even have enough lunch available for everyone attending the show. Now a days, you can walk away from a lunch booth well fed. (ctanner@wholesale-interiors.com www.wholesale-interiors.com)
Then of course you have the typical mainland Chinese viewpoint which is always one way or another the same: “Mei Wenti – Ni fang xin” which basically means, “relax, no problem, it will be just fine.”
Under lower demanding of USA market, My company mainly export our furniture to USA, Though, our orders didn’t discline from Last years. Because we keep our eyes on developing new customers. And due to smaller companier can’t easily survive in the situation, the it probably benifit to middle or large furniture company to take advance of the time. So at present, China also will keep normal development in furniture market.
If I had a dime every time I heard this one in China, I would be a rich man by now. Maybe this guy needs to get himself a “Meiwenti T-Shirt” from Zazzle? (though if its made in China, it will most likely not be up to spec )
Probably the best quote of all though is from Ultimate Accents and sums it up just nicely:
“Retail is so bad, it doesn’t matter if you are the biggest or the smallest,†said Ray Steele, vice president of sales for Ultimate Accents. “No one is coming in the door.â€
Lets cross our fingers and hope this climate improves?
Even more interesting is a quote from an article about Decoro on Home furnishings business:
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