You Pay Half!

In meetings I was warning my managers that this was an invasion of our market by a foreign power.

Part One

Fifteen years ago I was the Regional Sales Manager for a huge conglomerate that owned five major cabinet manufacturing companies throughout the USA. My job was to service the retail stores that bought our product and sold and installed it into residential remodels across the southern half of California.

Following the 2008 national economic collapse, the entire construction segment of the home building supplies industry was in a serious recession. Loans were scarce and expensive, consumers were terrified, independent contractors even more so.

As I surveyed the damage by visiting every one of my clients personally, I was shocked to see stores vacated and locked up. Others had let go of their entire staff, hoping to weather the storm by waiting it out. I would go to bed feeling terrible that some of my friends in the business were losing their homes to foreclosure. Many were nearing retirement and would have little time to recover. After years of navigating a tricky retail segment, and dealing with escalating labor costs, unstable real estate values and changing consumer demands, they were suddenly confronted with a tsunami they never saw coming.

One of the factors contributing to their dire circumstance had begun years earlier. As I drove the freeways I was seeing new signage, "Gabinets and Granite Countertops". It was my job to know who was active in my market, so sooner or later I would stop and visit these newcomers that couldn't spell.

Upon entering their showrooms I soon recognized them as Chinese Nationals. They spoke broken English and stood before a display wall of cabinet doors. Their facilities were concrete walled industrial buildings strategically located to be visible from freeways. In the back, there were shelves of cheaply packaged "Gabinet" parts. The salespeople would say "We have everything you need. Tell us your measurements and we deliver tomorrow. You pay half!"

Needless to say, this was a new way of selling kitchen cabinets. It was a DIY "knockdown" product: Meaning it was components delivered in a box, assembled on the jobsite by another party. A sort of IKEA approach to a business that had formerly delivered fully assembled, shop-built cabinet sections which were then installed by the shop's own installers. That way, the cabinet contractor was responsible for the finished product. The supply chain was local, the timeline predictable, and the whole process very profitable.

The Chinese approach was, "We provide easy-to-assemble parts, then you take over. We charge half as much!" And they did. They had perfected a process of assembly that required no advanced training. The assembled "box" was nowhere near as strong and durable, but once attached to adjoining walls and stabilized with a contiguous countertop, it looked just as good as the locally built product. Using the Euro-style box (five-sided with no face frame and full overlay doors to be the entire front), it was the ultra-Modern look that consumers were asking for.

In meetings I was warning my managers that this was an invasion of our market by a foreign power. It was obvious that the Chinese Government was behind it. There was millions of dollars of inventory sitting on shelves all over So Cal, and no private investor could afford to do that.

Some serious money was invested in undermining the local manufacturer. It had happened so fast, there were literally hundreds of new outlets, occupying premium locations, it was nothing less than an offensive take-over by a military-style invasion force.

My company was involved in many industries. Years prior it was owner of several major furniture companies: Henredon, Drexel Heritage and Lazy Boy were dominant in their lane, and Masco liked owning highly profitable manufacturing companies. But it wasn't long before China came after them and quickly took over the furniture industry, so Masco sold out. Now it was facing the same offensive into the residential cabinet lane.

But behind the scenes, they were investing in manufacturing plants in China. They were conceding that Americans simply would not, or could not compete! They were quietly importing Chinese sourced parts and then assembling them in the factories that previously build everything from scratch.

As the Great Recession continued to put economic pressure on the housing industry, the Chinese government assigned former military leaders to run the invasion of the American building supply industry. I found this out while I was actively investigating the obvious war on us.

I knew my future rested on saving us from their assault. I visited local granite fabrication shops, and learned that the Chinese were setting up similar operations featuring "pre-fabricated" granite sections, which included attached finished edges. This was putting local fabricators into bankruptcy. Instead of importing giant raw slabs and getting paid to cut, shape, deliver and install the finished product, the Chinese were fabricating in China, then sending sections, ready to deliver, to the already-in-place "Gabinet" showrooms.

I visited Chinese granite yards and saw thousands of 8 foot long sections, in dozens of "colors" (granite comes from all over the world, each location is different in its grain and color, but China has tons of it in various parts of their enormous country too). I was told by one worldwide Chinese fabricator, they were actually cutting stone onboard huge freighters while at sea, then dumping the residual shavings into the ocean, avoiding any environmental regulations and cutting costs even further.

"You choose from many colors and edges, we deliver and install. We charge half!"

Later, I was recruited by a Chinese contractor, servicing the HD Supply Company (a spinoff of Home Depot designed to provide fast, efficient jobsite services to multifamily builders and maintenance contractors). They wined and dined me in Las Vegas during the National Kitchen and Bath convention. They needed a "white" representative, and I listened to their offer.

I came away from that experience with an epiphany: The Chinese culture is imbued with a No Shame Ethic. They are proud to lie. They consider lying just a game-day skill.

I would never ever believe anything a Chinese business person told me. Sounds racist, but it is nothing more than a realistic way to deal with people who do not play by our rules. When you deal with cheaters, you either boycott the game or you learn to deal with their willingness to ignore the truth.

I am not in the business of understanding why they are that way. I have my theories, but from day to day, they don't really matter.

By 2010, the US cabinet and granite countertop industry had been turned upside down. Gone were the Ma and Pa cabinet shops, filled with loud saws and sawdust, and dozens of workers. Gone were the fancy showrooms with many fully assembled kitchen vignettes, and loaded with beautiful accessories, backsplash tiles, stainless steel sinks and amazing unique granite countertops.

Instead, there was a growing acceptance that "You pay half!" was the New Normal.

Next: Part Two

If You Can't Beat 'em, Join 'Em