Retail Observer

RETAILOBSERVER.COM AUGUST 2022 48 B y now I imagine you are all too keenly aware of the supply disruptions, slowing retail traffic and overflowing warehouses. We hope the situation turns soon, but no one knows for certain, and the best we can tell is that it appears we are poised for a few more months of this pain at a minimum. So rather than share more war stories, I'd like to do a deep dive on one topic: the exploding relevance of Mexico as a hub for sourcing product within the home furnishings industry. What with all the manufacturing disruptions of the last couple of years, there certainly has been a lot of shifting of where, how and when product is produced. While it has long been reported that production has been moving from China to Vietnam, Thailand, Turkey or Indonesia, it is Mexico that is drawing the most interest (and the least press) from the manufacturer and sourcing community. Of course, one of the biggest advantages of Mexican production is not having to worry about shipping containers over water. A generally stable trade policy and physical proximity (and therefore shorter time to market) don't hurt either. Nearly every vendor we meet with, as well as large retailers, have been engaged with Mexico on some level. The growth of trade shows such as this month's Expo Mueble Internacional in Guadalajara, as well as the south-of-the-border presence of U.S.-based furniture brands, have been striking. Like the headline of this story – and the Toby Keith song it's borrowed from – it's good to go to Mexico. Indeed, setting up compelling contracts or relationships with manufacturers, brands or importers that source in Mexico can certainly provide a hedge against the freight line consolidation we're seeing in over-water shipping. Despite the Fed's nearly unprecedented moves, inflation was still on the rise in many parts of the economy at this writing. Although transportation has seen some signs of pricing stability, we expect high prices to linger in over- water freight due to this consolidation. And after you work through your existing inventories toward a balance, Mexican partnerships can also provide some medium-term stability and safety from the supply-demand mismatch (and consequent difficulty in forecasting your business) that we expect to persist throughout this year, if not into 2023 and beyond. "But how much furniture production capacity does Mexico have left?" you may well ask. According to Mexico manufacturing consultant Tetakawi, production really expanded around 2014 (albeit not with the velocity of Vietnam), as wages in the U.S. and China began to outpace our neighbor to the south. Since then, container issues have only fueled the expansion, and today Mexico has risen to third place in U.S. furniture exports, behind only China and Vietnam. So how much capacity is left? BrandSource partner Legends Furniture, which recently debuted its first Mexican-sourced bedroom collection, believes the country's capacity is already maxed out. And New Classic, which produced its first products in Mexico earlier this year, agrees, noting that there are few factories with sufficient capacity to accommodate large vendors and retailers. There are southern headwinds to be sure. What with Mexico's new minimum wage increase of 21%, plus higher shipping rates and factory capacity limits, new manufacturing could taper off. But as of now, more furniture is coming out of Mexico than ever before, and we here at Furniture Technology Source expect this to continue as part of a broader "on-shoring" trend, driven in large part by container shortages. And we are seeing glimmers of this not only in home furnishings but throughout the broader economy. In the meantime, happy selling! Michael Posa Furniture Trends Michael Posa is General Manager of Home Furnishings for the AVB BrandSource buying group and helps spearhead its FTS (Furniture Technology Source) initiative. You can reach him at Michael.Posa@avb.net. RO GOOD TO GO TO MEXICO Consider our southern neighbor when shaping your sourcing strategy Mexico is the third-largest furniture exporter to the U.S., behind only China and Vietnam. (Photo courtesy Tetakawi)

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