Happy Chinese New Year! Sorry, the Item You Want Is Back-Ordered
Chinese New Year kicked off on Monday, and the celebration of the new lunar cycle is having a bigger effect on you stateside than you might think.
For one thing, that "made in China" item you purchased online has a higher likelihood of be back-ordered. Manufacturing plants across China typically shut down for 15 days as people celebrate the festival. Tens of millions make long trips back to their home towns from the industrial cities where their jobs are.
And even after the celebration, it's not always back to business as usual.
How U.S. Retailers Handle the Holiday
Major retailers and the National Retail Federation say they plan ahead to accommodate for the manufacturing shutdown in China during the Chinese New Year. Companies like Macy's (M) and The Container Store make changes to their production and shipping schedules to ensure they have enough goods to get them through the trough caused by the factory closures.
Throughout most of the year, retailers prefer to keep inventories as low as possible, an efficient system with modern just-in-time ordering. But at this period, adjustments have to be made.
"Retailers expect the shutdown every year and my impression is they time their orders and deliveries, so no disruption happens to their supply chain," says Erik Autor, vice president of the National Retail Federation's international trade council. "They have to put things in inventory until the factories are up and running again."
The New Year Production Hangover
While retailers are ready to handle the factory shutdowns in China during the New Year celebration, the post-Chinese New Year can be a bit of a crapshoot.
"One of the biggest challenges for us is when the workers go home during Chinese New Year's, sometimes they choose not to come back to the factories," says Brooke Minteer, senior buying director for The Container Store. "The factories wait a couple weeks after Chinese New Year's to see who comes back."
This problem has increased over the years as China moves from an industrial base to one more focused on technology, and its young people are eager to switch from blue-collar to white-collar jobs.
"It's making it harder for our vendors," Minteer says, noting the company last year found it didn't have shipments coming in for four to six weeks, representing millions of dollars in lost sales.
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China is among the top five sources of The Container Stores products, and the Chinese New Year is by far the longest holiday period, so its financial impact is greater than that of other countries' holidays, Minteer notes. Among The Container Store's top-selling products from China are an array of hanging shoe racks and sweater bags.
The Container Store mitigates problems by staying in constant contact with its vendors in the months before Chinese New Year, and especially in the days after the celebration to see how well their workforces are returning. "We're on the phone with all our vendors to see if our spring orders are still on target," Minteer says.
In one extreme case, a longtime vendor moved his manufacturing back to the U.S. from China. But after finding it was not cost-effective based on the labor costs and the price charged for the product, the vendor returned the manufacturing to China last year.
China's Loss, America's Gain
Stepping back and looking at the bigger picture, this time of year gives the U.S. economy a boost in its battle to narrow the trade deficit with China. According to statistics from the Department of Commerce, the first quarter has consistently posted the narrowest gap of the year going back to at least 2007, with fewer Chinese goods and services (roughly one-third fewer) imported into the U.S. than during the third quarter.
Last year, for example, the trade deficit stood at $56.6 billion in the first quarter, compared with $80 billion during the third quarter. The third quarter tends to mark the widest trade deficit gap, as U.S. companies prepare for the busy fourth-quarter selling season.
While the size of the first-quarter trade deficit had been largely trending down from 2007 to 2010, it bounced back up last year to slightly surpass 2007 figures.
Motley Fool contributor Dawn Kawamoto does not own any stock in the companies she mentioned. She is, however, invested in the idea of celebrating Chinese New Year with red envelopes.
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