The year 2020 is often described as “historic” or a “year like no other.” Everyone, it seems, is happy to “turn the page” on 2020 and put this extraordinarily difficult year behind us. Most of us are optimistic about 2021, a year we hope will get back to “normal.” But, as we enter 2021, we remain stubbornly gripped by a global pandemic that continues to wreak havoc on international supply chains while posing a persistent threat to our worldwide economic system. So, what’s in store for the POP display industry in 2021?
If we learned anything from 2020, it is that making predictions is not a good idea. This is particularly true in a year in which a new administration will assume leadership in the U.S. and trade tensions between the U.S. and China continue to weigh heavily on the world economy. However, while we humbly acknowledge God’s sovereignty, we can look at a few key indicators or underlying trends that provide at least some clues as to what we can expect in this new year. Our overall conclusion is that POP displays will be more expensive in 2021 as a result of inflationary pressure related to materials, labor, transportation, and currency fluctuations in the industry.
Material Prices– While our focus has been on COVID-19 infections and death rates, raw materials have been increasingly relatively rapidly. Since metal is a material commonly used to make displays and since China provides 51% of the world’s steel supply, it is instructive to look at steel price trends in China. The chart below shows the cost of steel rebar in RMB/ton. Since April the price has increased by 25% which means that China factories have been experiencing significant raw material cost increases for metal.
While used less frequently in making POP displays, aluminum prices in China have increased similarly, with a 24% increase since April of 2020.
Meanwhile, lumber prices in the U.S. have seen even more dramatic increases as a result primarily of COVID-19 related supply disruptions such as sawmill capacity reductions and closures. The chart below shows that average U.S. lumber prices per 1000 board feet have increased from $258 in March to $873 at the end of 2020- a whopping 238% increase. We expect prices to soften as more production capacity comes on line, but prices are likely to remain above Q1 2020 levels.
Labor– Like materials, labor is a key factor in the cost of POP displays. Wage inflation in China continues its consistent march upward. From 2018 to 2019, for example, average annual manufacturing wages increased from 72,088 RMB to 78,147 RMB, an increase of 8.4%.
At the same time, wages continue to increase in the U.S. As of January 1, 2021, 20 states have increased minimum wage with states like California, New Jersey, Illinois, and Arkansas implementing $1.00/hour increases, while New Mexico’s minimum wage increased by more than 16% from $9.00 to $10.50.
Transportation Costs– Transportation costs are also an important factor in POP display economics. Transpacific ocean freight costs increased significantly during 2020, in part due to COVID-19-related capacity reductions. One measure of ocean freight costs is the Shanghai Containerized Freight Index which increased by more than 2.5 times between the summer of 2020 and the end of the year.
Trucking rates in the U.S. also increased as a result of a shortage of truck drivers as well as more capacity allocated to food, protective equipment, and other pandemic-related essentials. Trucking spot rates averaged 20%-30% higher in Q3 of 2020 compared to 2019, and a number of industry analysts are predicting double-digit trucking rate increases in 2021.
Currency Trends– The POP industry is still heavily reliant on China to meet much of its manufacturing needs, and currency changes can play an important role in the prices that Chinese factories can offer U.S. importers. Since May of 2020, the Chinese Yuan has gained approximately 9% relative to the U.S. dollar, prompting many factories to raise prices.
In summary, we join the rest of the world in remaining hopeful for an end to the worldwide pandemic and a resurgence of the global economy. However, we expect the cumulative impact of material cost increases, rising labor rates, transportation rate hikes, and currency trends to result in higher POP display prices. Let’s pray for a heroic retail recovery.
Jim Hollen is the owner and President of RICH LTD. (www.richltd.com), a 35+ year-old California-based point-of-purchase display, retail store fixture, and merchandising solutions firm which has been named among the Top 50 U.S. POP display companies for 9 consecutive years. A former management consultant with McKinsey & Co. and graduate of Stanford Business School, Jim Hollen has served more than 3000 brands and retailers over more than 20 years and has authored nearly 500 blogs and e-Books on a wide range of topics related to POP displays, store fixtures, and retail merchandising.
Jim has been to China more than 50 times and has worked directly with more than 30 factories in Asia across a broad range of material categories, including metal, wood, acrylic, injection molded and vacuum formed plastic, corrugated, glass, LED lighting, digital media player, and more. Jim Hollen also oversees RICH LTD.’s domestic manufacturing operation and has experience manufacturing, sourcing, and importing from numerous Asian countries as well as Vietnam and Mexico.
His experience working with brands and retailers spans more than 25 industries such as food and beverage, apparel, consumer electronics, cosmetics/beauty, sporting goods, automotive, pet, gifts and souvenirs, toys, wine and spirits, home improvement, jewelry, eyewear, footwear, consumer products, mass market retail, specialty retail, convenience stores, and numerous other product/retailer categories.