Dive Brief:
- Williams-Sonoma is struggling to find alternative, high-quality vendors outside of China as it continues to work toward reducing its sourcing reliance on the country.
- President and CEO Laura Alber said on a Q2 earnings call last week that the home goods retailer is still working on securing “multiple high-quality vendors who can make some of our high-risk furniture for kids,” noting it’s been difficult to find suppliers that meet both quality and sustainability standards.
- Williams-Sonoma had moved to reduce sourcing in China by half in response to U.S. tariffs as high as 25% on furniture and other goods from the country. Alber said that the company has so far “significantly reduced the China exposure” since 2020.
Dive Insight:
Even before the pandemic, businesses were already rethinking their relationships with China. Tariffs, rising wages and longer lead times have raised costs, undercutting the country’s low-cost advantage.
Williams-Sonoma CFO Julie Whalen said in May 2020 that tariffs represented “a significant amount that we absorbed” in costs, and that the company aimed to reduce about 50% of its production in the country before the end of the year.
The pandemic has supercharged efforts to diversify suppliers and maintain supply chain resilience. Amid a private and federal push to domesticate supply chains, a record 261,000 jobs were added in the U.S. as a result of reshoring or foreign direct investment according to the Reshoring Initiative. Meanwhile, optimism about the future business outlook in China dropped to a record low, driven by the country’s COVID-19 control measures, according to the U.S.-China Business Council.
Still, diversifying away from China has proven difficult given pandemic supply chain challenges that have impacted suppliers around the globe. Many companies had shifted sourcing to Vietnam in the wake of Section 301 tariffs, for example, only to see operations hobbled when the country instituted COVID-19 lockdowns in manufacturing hubs.
“The continuation out of China has happened, but it doesn't mean you're moving it to a place that is free of any other issues,” Alber said on the Q2 call. “There's a lot of different issues in all these places around the globe, including the domestic market.”
As consumer demand begins to soften from its pandemic highs, finding alternative suppliers to China will only become more difficult. Suppliers are hesitant to scale manufacturing “given the recessionary fears that everyone has out there,” Alber said.
“I think we're going to continue to see pressure on flow from some of the highest quality vendors,” she said.
