HO CHI MINH CITY, Vietnam — Furniture manufacturers here have been in high demand as China tariffs have forced many importers to look outside China to avoid a 25% tariff on finished goods.
Indeed, much of the wooden bedroom — along with some coordinating dining and occasional furniture — previously shifted to Vietnam since the mid 2000s as importers sought to avoid antidumping duties as high as 216% on the category.
But by late 2018 there was still plenty of wood furniture left in China to re-source. This included occasional and accent furniture, home entertainment and home office, plus wood kitchen dining furniture. These two categories accounted for $4.1 billion in shipments or just over 30% of the total $13.5 billion in shipments from China in 2018.
Destination FT: Furniture Today explores furniture industry in Vietnam
Destination FT: Furniture Today explores furniture industry in Vietnam
October 4, 2019 at 02:06pm
Interview with Charles and Tina Lo, Kaiser Furniture
October 4, 2019 at 10:00am
Interview with Kevin Castellani, Man Wah Holdings
October 4, 2019 at 10:27am
Tour of Man Wah Holdings facility in Vietnam
October 4, 2019 at 02:08pm
Interview Jonathan Sowter, Jonathan Charles
October 4, 2019 at 10:29am
Tour of Jonathan Charles facility in Ho Chi Minh City, Vietnam
October 4, 2019 at 10:42am
Interview with Starwood Furniture executives
October 4, 2019 at 10:33am
Tour of Starwood Furniture facility in Binh Duong Province, Vietnam
October 4, 2019 at 10:45am
Interview with Walter Blocker, Stanley Furniture
October 4, 2019 at 10:34am
Tour of Stanley Furniture facility in Ho Chi Minh City, Vietnam
October 4, 2019 at 10:43am
Interview with Andrew Lien, Wanek Furniture
October 4, 2019 at 10:38am
Tour of Wanek Furniture facility in Vietnam
October 4, 2019 at 11:23am
For complete interviews and factory tours for each company, please visit our Vietnam video gallery.
Upholstery shipments — wood-framed seating and wood-framed chairs — accounted for roughly the same amount of shipments from China in 2018. These and other types of upholstered furniture are also shifting to Vietnam and other countries in the region.
Vietnam is perhaps the most obvious choice as its infrastructure has been in place for years, particularly on the wood side of the business. It is less developed in upholstery, but that category, too, is slowly ramping up during this rapid transition.
Vietnam also is attractive as labor rates are still low — estimated between $300 on $500 per month for production workers — compared with upwards of $900 per month in China, sources say.
In August, Furniture Today visited more than a dozen plants in Vietnam to learn about their business and how the tariff situation has affected their overall capacity.
How these factories have responded varied from manufacturer to manufacturer. While some were eagerly taking on new business and expanding their operations to meet the additional demand, others were staying the course in order to continue serving long-time existing customers.
Yet, even those expanding or taking on new business were doing so strategically in light of competition for workers and rising labor costs. Land costs also are at a premium, causing some to weigh expansion plans based on their existing campus footprint.
Buying or leasing land at $200 or more per square foot, compared with less than $10 some 15 years ago is having some deciding whether such an investment will pay off in the long term.
“This is hurting the furniture business,” said Thomas Luk, president of case goods and upholstery manufacturer Starwood Furniture. “More impact will be felt for the furniture industry next year. In general, furniture is more complicated to manufacturer compared with other industries and requires much more land and more labor, leading to low output per person compared to other industries. This makes it difficult to compete with other industries in terms of keeping workers and executives. Eventually this will cause prices to increase for furniture products.”
The challenges appear more acute for upholstery as the segment is less developed that wood furniture.
But even on the wood side, available capacity is filling up quickly as major U.S. retailers have scoured the landscape for alternatives to China. On top of that, there is demand for capacity from the cabinet and vanity industry where proposed antidumping and countervailing duties on these categories are causing a mad scramble to Vietnam.
Starwood and its sister company Thomas Carey have taken on more vanity products due to the ability to produce the units in larger production runs. Running many SKUs in large collections by comparison can be inefficient as the order rate on some smaller pieces is far less than a bed or dresser, for example.
“For us, capacity is a relative term,” noted Ray Lu, director of product development at Starwood. “With traditional furniture that is not where we can hit our growth in terms of capacity, but with the possibilities of vanities and other (categories) that is where we can increase by 50% this year in terms of overall sales and revenue while maintaining the same number of workers and the same amount of equipment and land.”
Vanities currently represent about 30% to 40% of existing production, up from 0% in 2018, officials noted.
Yet, Starwood has had to weigh demands for its available capacity against a need to serve its existing customers. These include its U.S. marketing arm Home Insights Furniture and sister company Turnkey Solutions, plus the brands of manufacturing partner and factory co-owner Markor, which include A.R.T. Furniture and Caracole.
Starwood officials note that the increased shift of product from China has been occurring gradually over the past several years due to heightened environmental regulations in China. The China tariffs — first 10%, then 25% — have simply escalated demand and quickly.
Starwood sources say the demand has been so great customers have requested orders on product without even having been to the factory.
“The person has not even been here yet, and they have sent us a PO (purchase order) asking ‘Can you make this for us?’” Lu said. “With the tariff at 25% we are seeing PO being placed with us with nothing confirmed. … It has made a lot of these furniture guys move with no questions asked.”
The company has no expansion plans but rather has been using its existing case goods and upholstery plants — including Starwood and Thomas Carey — to handle any additional business, including the surge in vanities.
“Labor is certainly a challenge to begin with both in terms of workers and executives,” Luk said. “In addition, there is the challenge of the transition of taking on new business categories such as bathroom vanity and home improvement products.
“We have more business than we can handle on the furniture end, so we’re being selective on the business we take for existing case goods and dining categories by only serving our U.S. marketing arm and limited key and loyal customers, while expanding output rapidly to vanity and home goods categories due to the tariff and anti-dumping against China.”
Jonathan Charles veneers
High-end furniture, accents and lighting producer Jonathan Charles — in which Markor also has an ownership stake — said it, too, has had many requests to build product. But it also has been strategic in its response.
“We get approached all the time from different companies asking us to manufacture for them,” said company CEO Jonathan Sowter, noting that some of the demand has been for vanity production. “We cherry pick the companies where we think we can bring value to their product line.
“We have seen a big shift recently where people in the vanity unit industry are approaching us every week. … For us, we are not in the business of looking for new customers. Our business model is to do more business with our existing customers so we can all grow and be successful together.
“So we aren’t really affected by this shift to Vietnam because we are already working with the right people we want to work with,” he added. “We just want to do more business with them.”
Another company that has had to weigh increased demand alongside its existing customer base is case goods manufacturer San Lim Furniture. It has been doing business with major brands in the U.S. market for the past 15 years and doesn’t want to compromise any of those relationships just to get new business.
“Because we cannot supply everybody, we stay loyal to our existing customers,” said Tony Sulimro, president, noting the tariff situation has had many knocking on its doors, asking for available capacity.
This includes requests from the vanity and kitchen cabinet industry, which Sulimro has turned down as that business would require major changes in its production layout and finishing processes.
Instead the company is focusing on improving its existing manufacturing processes, which include not only case goods manufacturing, but also a metal plant that produces metal components — including metal bases — for its wood line.
The plants, which include about 2 million square feet of production, are running at about 75% of full capacity, have room to grow with the current customer base. It also has boosted efficiencies with investments in new equipment. While such automation has lowered worker headcount by about 15% from five years ago, it has helped control the cost of finished goods.
“We have enough (order) quantity to manage our factory,” Sulimro said. “Our customers are growing with us, and we are growing together.”
Charles Lo, CEO of case goods and upholstery manufacturer Kaiser Group said while his plant produces vanities as part of collections it is not accepting vanities or kitchen cabinets being moved from China.
“We are not producing kitchen cabinets,” he said. “There are a lot coming here now, but we have said no. We don’t have the machines or the people for that kind of product.”
Instead, the company is focusing on new business for a new plant it opened last year that will produce stationary and motion upholstery as well as metal and wood furniture. Upholstery and the other categories in its original plant, which fall in the middle to upper-middle price points, remain its core competencies and thus a natural area for expansion.
Case goods manufacturer Lodestar also has received requests to do new product and has taken on some additional product due to China tariffs. But it also has turned down a lot of offers to build product for other customers, said Jimmy Warren, vice president of product development, customer service and technical support.
“We didn’t feel like it fit our business,” Warren said, noting that most of the requests have been for occasional furniture and some dining, including tables and chairs.
The company instead largely has grown business with both new and existing customers because it had the available capacity, Warren said. This new business includes some kitchen cabinets its factory had the capacity to produce.
Lodestar will further boost its capacity when it completes a new 800,000-square-foot plant across the street. The plant — which will have two finishing lines: a pallet and a hanging line— will produce about 60 containers a month of bedroom, dining room and occasional furniture, Warren said.
He said the new factory will address the need for additional capacity. But it also will replace another area factory that the company will eventually need to close because the government wants to buy the land.
Other companies are poised to grow with both existing business and new customers. This includes Stanley Furniture, which began production in its own 500,000-square-foot operations in the Binh Duong Province this past spring.
The plant, which assembles and finishes wood furniture, is steadily filling its capacity. For example, it expects to produce roughly 100 containers a month of the full 300 per month capacity by the end of this year.
“I think we are perfectly positioned because we are a brand owner that is in control of its supply chain,” said Stanley owner and Chairman Walter Blocker, who estimated the investment in the plant, equipment and raw materials at about $20 million. “And we are vertically integrated in Vietnam, which is the most competitive place to manufacture high-quality furniture today in the world, I believe.”
He said the company also has an advantage in that it has secured a talented labor force that helps create efficiencies that customers ultimately see in the value of Stanley’s finished goods.
“We are not bringing in borax and spray painting it,” he said. “We have very skilled workers, and we also have a very efficient process, so that the labor cost in relation to my finished product is not that big.”
He agreed that rising labor costs are an issue in Vietnam, but not one that would necessarily affect his cost of doing business, over the short or long term.
“And then you have the Vietnamese culture, which produces a very, very high quality work, a very high quality and sense of morality and personal responsibility,” he said. “They want to learn, they want to understand, and they want to do it well.”
Samson Holding also has invested in Vietnam, having recently acquired a 70% stake in Timber Inds. a division of Green River Group. The nearly 2 million-square-foot facility, which has a capacity of 500 containers per month, will rise to about 700 containers per month as it begins producing product for Universal Furniture, one of Samson’s U.S. brands.
A key goal is to shift Universal product out of China to Vietnam to avoid the 25% tariff on finished goods. In announcing the acquisition in mid-July the company said that Samson’s Jiashan, China facility would help Timber Inds. with engineering support during the transition period. The China facility, it noted, would continue to produce Universal products during the transition and then would primarily serve both China and other international markets.
In its July announcement, Samson Holding said that Universal would have an exclusive production line in the Timber facility that would begin production sometime this fall. That production line will occupy roughly a third of the space, and officials said there are no plans to make changes or modifications that would affect existing customers.
“I think what needs to happen to make the company successful is the same thing that would need to happen at any factory: You need to have the right people in place and the right equipment and the right training,” Samson Holding Executive Director Mohamad Amini told Furniture Today. “We are very fortunate to be able to bring very mature employees, technicians and engineers to the facility to help with the process and the transition.
“The challenge will be to make sure we can find all the people we need from Vietnam for the additional line and to get all those people in place,” he added, noting that the company will need about 700 workers — ranging from production workers to engineering and quality control management — above and beyond what the plant employs now.
Meanwhile, other companies such as Kaiser, Rochdale Spears, Shing Mark and Wanek Furniture also have boosted or are boosting capacity to serve what they view as an ongoing demand for product from Vietnam, including upholstery.
These and other manufacturers expanding in Vietnam say they are prepared for the opportunities and the challenges the country faces in the future, particularly relating to rising labor costs and the need to attract more talent to the industry.
“Cost is definitely a concern, but it’s not just labor costs and labor shortages,” said Blocker. “It’s also the cost of land, the cost of using an increasingly stressed infrastructure and the cost of sourcing raw materials and componentry in certain industries that have been dominated by China. …
“Not every industry will be able to make the transition that furniture has because the componentry and raw materials coming into those other industries; it will take a long time for them to make it work.”
Yet many, including Blocker, are optimistic about Vietnam. They note the shift will continue to not only require investments in labor, but also in new equipment, which will help Vietnam factories remain price competitive and also more consistent in quality and shipping.
Some interviewed for this story, for example, said that lead times have been elevated to some extent due to worker turnover. As more companies compete for that work force, turnover and stressed lead times may continue to be an issue. But officials believe the situation will eventually even out as more young people enter the work force.
“We have 1.1 million people entering the work force every year, and our population is 100 million,” Blocker said. “It’s a very young population, and we have a platform here that is sizable. Secondly, the education in Vietnam and the Vietnamese work ethic means productivity will continue to improve.”
And while no one expects Vietnam to replace China’s manufacturing clout anytime soon, they believe it remains and will continue to remain a viable resource for years to come.
Man Wah sewers
It’s why motion furniture manufacturer ManWah Holdings invested some $400 million in improvements to the Timberland campus in the Binh Duong Province following its acquisition of the plant in July 2018. This included an additional 2.5 million square feet of production space and new equipment to outfit the new buildings.
“ManWah is as committed to Vietnam as we are China,” said Kevin Castellani, director of corporate communications, of the investment by company owner Wong Man Li. “Again, we have 20 million square feet of manufacturing in China, and this is going to be 4.5 million square feet when it’s done. …
“Every line that we have is going to have new sewing machines, new cutting machines, new stretching machines. We are doing everything we can, and the investment will continue. (Li) has built right now what we believe is going to be the largest vertical upholstery factory in Vietnam to date, and that investment is going to continue.
“So yes we are very committed to Vietnam in the long run.”
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