Some furniture retailers say price increases may be 'inevitable' amid supply chain woes

SINGAPORE: Local furniture retailers are finding it harder to shelve price increases as ongoing supply and transport disruptions continue to push up costs “exponentially”.

Freight rates, for instance, have seen a near 10-fold increase on the back of a persistent shortage in shipping containers and port disruptions amid the COVID-19 pandemic. Supply constraints also bumped up the costs of raw materials, particularly metal which saw prices rise as much as 60 per cent last year, they told CNA.

After absorbing these cost surges for more than a year, homegrown furniture label Commune said it has “come to the level where it is no longer able” to keep doing so.

“We don’t have the margins to stomach (the rising costs) so we are going to increase prices very soon,” said chief executive officer Joshua Koh.

HipVan, another local furniture retailer, has seen a 10 to 15 per cent jump in costs and has also been holding out on passing on the costs to consumers. But if the supply chain snarls persist, it “may have to revisit prices slightly to help cushion the burden”, chief executive officer Danny Tan said.

“Our customers can be assured that we will do everything we can to keep our prices low, but we’ll also need the continued support of our customers and their kind understanding in situations of supply chain uncertainties,” he added.

These local retailers are not alone.

Swedish furniture giant IKEA has announced a price hike, with the increase at its Singapore stores averaging at about 3 per cent.

This came after the owner and franchisor of the IKEA brand reported a 17 per cent drop in annual profits last year, as the “steep increase” in transport and raw material costs offset record consumer demand.

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.

Commune said its upcoming decision to raise retail prices will not be a flat increase across all its products. Instead, it will be product-specific to reflect rising costs.

“For example, metal prices have gone up by a fair bit so products made of metal will have a higher cost increase versus those made of other materials,” Mr Koh said.

“The adjustment that we are looking at is definitely not an opportunistic one. We still want our products to be seen as value for money.”

Retailers are also keeping an eye on another looming concern: the planned two-percentage-point increase in the Goods and Services Tax (GST).

Noting that the GST hike is “the last thing” that retailers need, Mr Koh said: “Although it’s only a 2 per cent increase, and it's not that material when compared to the rise in freight rates that we are seeing, the mind of a consumer is going ‘Oh no, prices are increasing so maybe I should not spend’.”

A staggered increase is also not ideal given the “administrative hassle” for businesses, especially retailers.

Mr Koh is hoping that the GST increase can be pushed back until global supply chains improve.

“Because now, it's already a perfect storm.”