Smartpack Kitchens Take The China Heat
Smartpack Kitchens chief executive Mike Caminer realised five years ago that if he didn’t take quick action, competition from Chinese imports would destroy his kitchen manufacturing business.
Today Smartpack still sells kitchens, but just about everything else has changed – its product is now almost entirely manufactured in China, a new digital strategy is reaping dividends and annual revenue from the core business has jumped 20% in the past six months. He is forecasting revenue of about $4 million in 2007-08.
The seeds of Smartpack’s change of strategy were sown when Caminer realised that a $2 million spraying machine he had bought for cabinet finishing – for both his products and those of other local manufacturers – was never going to deliver a viable return on investment.
It was because between 2000 and 2003 the local Australian furniture making industry was being swept away by a wave of cheaper Chinese imports. The kitchen manufacturing side of Smartpack was still performing well but Caminer saw that, unless some hard decisions were made, it too would soon become uncompetitive.
Between 2004 and 2006 Caminer visited China four times, each time meeting as many people as he could and even hiring a professional firm to help him make connections in the relevant sectors.
“It was an eye opener,” Caminer says. “Once you start to investigate China, you realise it is not even a competition, there’s no way you can drop your margin, or cut costs to compete. The prices there are just miles ahead of anything you can do here, even taking into account shipping costs.”
He also came to the realisation that, as a relative newcomer to China, it was going to be both difficult and risky to deal directly with manufacturers himself. Instead, he formed a partnership with a Hong Kong-based firm with connections in China to act as a conduit between Smartpack and the manufacturers.
So far, at least, the change in strategy is paying off. Smartpack has now brought around 500 kitchens into Australia since the first container arrived early in 2007, allowing it to reduce its workforce from 50 people to 10 and increasing gross margins on each sale by 15%.
That has meant a 20% lift in revenue in the last six months to an annual figure of between $3 million and $5 million, an increase that has effectively meant that money flowing from the kitchen arm of business has replaced that lost from the defunct spraying business.
It takes a smart business person to realize exactly what and when they need to do something to keep their business afloat. I’m impressed with Mikes ability to adjust as changes started to show up around him. Instead of watching his business start to fail, he was able to grasp onto the changes needed and has managed to help it grow in a new way.
Jim O'Donnell on February 14th, 2008 5:57 am
It seems it’s that way across the board. Even something as simple as the beauty shears business that I’m in is being rocked by China’s ability to out-preform and out-price.
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