It's obvious to anyone who scans the daily business headlines: Prices are going up. And as high gas costs feed inflation concerns (or is it the other way around?) and the U.S. dollar continues to weaken, manufacturers and retailers can’t help but notice their shrinking profit margins. In the face of these economic challenges, it’s up to savvy managers and executives in the lighting industry to find new ways to cut costs and increase efficiency. Lately, talk has turned to the global supply chain.
Freight is an important part of the lighting industry, serving as the critical link between manufacturers and retail lighting showrooms. Without reliable, cost-effective shipping options, lighting showrooms can’t maintain the critical mass of goods required for a successful store—much less sell in volume to customers. Because of this, it’s important to know what to expect from manufacturers. After all, any potential money-saver is one more discount that can be passed on to the consumer.
“As rising fuel costs continue, it’s going to become more and more of an issue to be creative with how we’re getting our product to our [showroom] customers,” says Joel Kent, Director of Marketing for Lite Source Inc.
In recent months, Kent has looked again at air freight—once maligned as a high-cost luxury reserved only for the most affluent buyers. But depending on the delivery location and installation timeline, Kent says, air freight measures up favorably compared to overland trucking.
“Lighting is a lighter product,” he explains. “There are a lot of people who are looking at air freight. It gets it to you quicker, and costs are almost the same as ground transportation.”
Many operators of lighting showrooms count on freight terms—minimum thresholds after which a particular order qualifies for free shipping—as an important part of their business arrangement with manufacturers. This practice keeps lighting retailers shielded from dramatic shipping-cost increases, and it makes freight consolidation—fewer shipments bringing in more merchandise per trip—an even more attractive tactic. But even these strategies aren’t immune from the vagaries of the global supply chain.
“[Manufacturers] are increasing freight terms, and we just need to place larger orders,” says Rick Williams of Echo Lighting Design Center in Omaha, NE. “We have to make sure that we are either charging [the consumer] for freight or that when we make our purchases, we qualify for free freight [from the manufacturer].”
Lite Source, for example, offers free shipping for orders of $1,750 or more. Other manufacturers stay competitive by virtue of where they’re located. West Coast lighting retailers often get favorable rates from manufacturers based in the same area, whereas East Coast operators keep costs low by ordering close to home. Some manufacturers, however, have found the best of both worlds.
“We have a huge advantage being in the middle of the country,” says A.J. Cosgrove, Marketing Director for Barbara Cosgrove Lamps, which is headquartered in Kansas City, MO. “We’ve been using [FedEx] for the 10 years we’ve been in business, and every year we ask for bigger, better discounts. We try to pass that savings on to our [retail] customers.”
Transporting merchandise from factories to the shelves isn’t cheap, but retailers can come out ahead if they know what to expect.