Increasing production
costs coupled with keen competition in the industry have been thinning
profit margins of slipper makers in China, pushing many of them
to increase export prices in coming months. Many suppliers are also
shifting their focus from low-end to midrange and high-end slipper
manufacture, which yield higher profits.
Prices of China-made slippers are expected to go up by about
10 percent in the next 12 months due to a number of factors that
have been increasing makers' operational expenses. Raw material
costs, which account for as much as 50 percent of a slipper's price,
have been continuously rising. The cost of PU resin, one of the
main materials for soles, increased from about US$1,100 per ton
in February 2004 to more than US$1,800 by year-end.
In addition, the labor shortage that has been affecting nearly
all industrial provinces in China's coastal regions is forcing companies
to offer higher wages to retain or attract skilled workers, spend
more on training, and improve factory and dormitory conditions.
Over the past year, these measures have added at least 10 percent
to most companies' operating costs.
The shortage of electricity in industrialized parts of China
is likewise presenting a challenge to suppliers. Many have had to
purchase generators in order to keep production running during the
frequent power cuts.
Even with higher production costs, many slipper companies could
not raise prices in 2004 because of intense competition in the industry.
Growing overseas demand for China-made slippers has encouraged more
and more companies to join the line, especially since production
does not require high-technology investments. In addition, many
slipper makers that used to focus exclusively on the domestic market
have ventured into overseas trade, taking advantage of the China
government's decision in 2004 to lower the registered capital required
in acquiring export licenses.
Competition is especially severe in the low end, the line offered
by most China suppliers. Prices of low-end slippers have dropped
by up to 30 percent in the past five years, resulting in extremely
low profit margins for makers. Because of this, an increasing number
of suppliers that can afford to invest large amounts in R&D
are now moving into more upscale production. Even some of the midrange
makers are following suit, though to a lesser degree.
Apart from better-quality materials, design is a major element
in the production of midrange and high-end slippers. Since their
manufacture requires stronger R&D capability, only a few suppliers
are currently producing these types of slippers. This enables companies
to raise prices of their midrange and high-end slippers to compensate
for overall higher production costs, without the risk of losing
potential orders.
The prospects of higher profits have also encouraged some suppliers
to shift from plastic to genuine leather slipper production, especially
since overseas demand for the latter is growing, particularly in
the European Union.
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