RISING COSTS AND LONG DELAYS
Describing logistics hold-ups as “the most pressing issue”, Commune’s Mr Koh noted how the cost of shipping a container from China to Singapore has soared to US$3,500 from around US$500 prior to COVID-19.
Shipping costs to Europe have also multiplied by about eight times to US$16,000 over the same period.
The impact goes beyond costs. Container shortages and port congestion also mean that weeks-long, and sometimes months-long, delays have become increasingly common.
“Today may be the day your container is supposed to sail but the vessel is delayed, so it’s pushed to next week. Next week comes but there’s a delay again. Another week comes, the same thing happens,” said Mr Koh, adding that this has led to a “big disruption” in the fulfilment of customer orders.
The supply issue is compounded by production hiccups as regional COVID-19 outbreaks last year shuttered factories in countries such as Vietnam and Malaysia for several months.
A power supply crunch in China, which also resulted in factories being ordered to curb activity or shut down in September, further disrupted supplies for furniture retailers.
Online furniture brand BedandBasics, which has factories in Malaysia and China, said the disruptions occurred “one after another” and “led to more products being out of stock and for a longer duration”. The longest delay it experienced lasted for six months.
Such delays are especially detrimental for online brands, it added, which is why the company has offered “goodwill discounts” and “no-questions-asked refunds” to customers who needed their orders urgently.
“Because we don’t have a physical presence, it’s all about brand reputation and word of mouth,” said BedandBasics’ co-founder Ryan Wong.
“We want to give customers the reassurance that if they buy something from us, they will get it. If the delays get too long, we also don’t want them to worry.”
Unfortunately, the supply chain bottlenecks do not seem to be going away. Shipping rates have remained elevated even after the year-end festive season, retailers said. Renewed COVID-19 outbreaks in several Chinese cities have also added to the unpredictability of manufacturing operations in the country.
At the same time, retailers said they have been paying more for materials amid surging demand. The prices of metal, for example, shot up by 40 to 60 per cent last year, according to Mr Koh.
Costs in other areas, such as manpower, rent, utility and even digital marketing, are also edging up.
As a result of these, furniture retailers have continued to see thin margins even as work from home trends spurred people to spend more on sprucing up their homes, Mr Wong said.
“Costs have increased exponentially. With that and supply constraints, we couldn’t really grow as much as we would like to over the past two years,” he added.
“Even a big company like IKEA with an efficient supply chain had to raise prices. So for the rest of us, a price increase is inevitable.”
WALKING A FINE LINE ON PRICE HIKES
But raising prices is not an easy decision, retailers say.
For BedandBasics, being affordable has always been its key differentiating factor, Mr Wong said. The brand has priced its products by more than 30 to 50 per cent lower as it enjoys cost savings by operating online and bypassing distributors to procure items directly from the manufacturers.
Last year, it raised prices “slightly” by about 5 per cent to cope with soaring freight rates. It may have to increase prices again if cost pressures persist in the longer term, although the company said it is also considering other solutions.
These include investing in technology to raise warehouse efficiency and to get better insights into consumer demand. It is also looking to diversify its supply chain by getting partners in other parts of the region, such as Indonesia.
“We will try to absorb most of the costs and are trying to do all these things first before having to raise prices as a last resort,” said Mr Wong.