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The 123-year-old Australian company that flocked to China was hit by a chilling reality

Geopolitical tensions and the US-China trade war have imposed tough tariffs on some industries. COVID-19 has disrupted the flow of goods, raising prices on almost everything and delaying shipments by months. China’s quarantine and lockdown pandemic response has forced customers to stay at home and not be able to go to stores.

AH Beard opened its flagship store in Shanghai with a local partner about ten years ago. And, like any other luxury brand, it offers products at incredible prices. China has become the best-selling market for top-of-the-line $75,000 ($107,400) mattresses.

China’s economy has been hit hard by the pandemic. credit:bloomberg

Since then, container shipping costs have jumped sixfold. The cost of mattress materials and components such as latex and natural fibers has risen significantly. Other worrying signs are emerging, such as housing slump. (A new home often means a new mattress.)

Pearson said he hopes the Communist Party Congress later this year will clarify “China’s trajectory” and give consumers more confidence. “The economy still has growth potential,” he said. “But there is always some degree of risk.”

After the 2008 financial crisis, as the rest of the world contracted, China emerged as an outlier and was flooded with international companies.

European luxury brands set up glitzy stores in China’s big cities, while U.S. food and consumer goods companies scrambled for supermarket shelf space. German car makers opened dealerships, and South Korean and Japanese semiconductor makers approached Chinese electronics makers. A booming construction market stimulated demand for iron ore from Australia and Brazil.

Chinese consumers have rewarded these investments by opening their wallets. But the pandemic has shaken the confidence of many shoppers who now have rainy days ahead of them.

Fang Wei, 34, said he has cut back on expenses since quitting his job in 2020. He used to spend most of his salary on brands like Michael Kors, Coach, and Valentino when he often went shopping.

She was rehired and works in advertising in Beijing, but now spends a quarter of her salary on food, transportation and other living expenses. She gives her remainder to her mother, who deposits the money in her bank.

“I’m worried about getting fired, so I forward everything to my mother every month,” Fang said. “The transition from enjoying life to being self-sufficient is very depressing.”

In 2016, when China was the fastest growing and most profitable market, Adidas CEO Kasper Rorsted declared China to be “the star of the company.” Adidas invested aggressively to expand its foothold. It has grown from his 9,000 stores in China in 2015 to his 12,000 today, but only 500 of his stores are operated by Adidas. Then the music stopped.

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Adidas, which had originally expected sales in China to accelerate this year, lowered its forecast in May as the coronavirus lockdown continues to widen. The company now expects a “significant decline” in sales in China, and said a sudden recovery was unlikely.

So far, Adidas hasn’t faltered. Rorsted said on a conference call with analysts that the company has no plans to cut costs or exit the United States. Instead, it will “do whatever it takes to double down and accelerate growth.”

Many foreign companies were betting that China’s rising middle class would be a reliable source of their growth. Consulting firm Bain & Company said it expects China to become the world’s largest luxury goods market by 2025.

An Adidas store in a shopping mall in Beijing. In China, he has 12,000 of his Adidas stores, up from 9,000 in 2015, but the company says it expects revenue in China to

An Adidas store in a shopping mall in Beijing. In China, he has 12,000 of his Adidas stores, up from 9,000 in 2015, but the company says it expects revenue in China to “drop significantly” this year. . credit:Julia Marchi/New York Times

But those projections look less attractive to some foreign companies that once relied heavily on the Chinese market.

Kamps Hardwoods, a Michigan-based manufacturer of kiln-treated wood used in homes and furniture, first seized an opportunity to expand its business in China. At a 2015 China trade fair, the company’s general manager, Rob Kukowski, said a Chinese buyer had surprised him with a huge offer to purchase enough inventory to fill 99 shipping containers.200 The $10,000 lumber order is Kamps’ four months’ worth of deals.

Chinese buyers at the time were so desperate for lumber that they visited the company’s booth and refused to leave until Kukowski accepted a $1 million deal on the spot. accounted for 80% of

Kamps quickly realized that it would be difficult to make a profit from large amounts of Chinese orders, as many buyers were not interested in quality and wanted the lowest possible price. The company began to focus on finding customers in the U.S. and other foreign markets who were willing to pay more for a better product.

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It just happened to be the timing. Kumps was better positioned to weather the recession when China raised tariffs on her U.S. timber in 2018 as part of the trade war. Today, China accounts for only 10% of her Kamps sales, but still has a significant indirect impact on the company. China is a big buyer of U.S. timber, Kukowski said, and if China stops spending, there will be an industry-wide price war.

“Their purchasing power is very strong and a lot of our products go into that market,” Kukowski said. “If the economy slows down, our industry will face serious problems.”

This article was originally new york times.

The 123-year-old Australian company that flocked to China was hit by a chilling reality

Source link The 123-year-old Australian company that flocked to China was hit by a chilling reality

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