Ready to assemble cabinets have become an important part of a $30 billion cabinetry market in the U.S. (NKBA study). Globally, it is estimated that the RTA kitchen cabinets market will be worth more than $45 billion by 2023 (Research Nester).
Although American furniture producers offer RTA cabinets, Chinese furniture producers have become the market leaders in the industry, dominating both the American and global market. Chinese imported RTA cabinets have gained in popularity in this century due to greater affordability compared to custom cabinets, more abundant quantities of stock, and increased competitiveness in terms of quality.
Most Chinese RTA cabinets offer plywood construction, soft-close features, and solid wood frames/doors/drawer faces as standard options. While some other popular world cabinet producers, such as Ikea, also offer RTA cabinets, China's manufacturers managed to capture the American market with an appealing combination of contemporary looks, solid quality, easy assembly, and affordable prices.
Traditionally, Americans preferred custom and semi-custom kitchen cabinets. However, a changing lifestyle has led to a transitional and clean styling that has become a lavish standard for home improvement projects and new residential constructions.
Other kitchen cabinet producers noticed this sudden rise and popularity of Chinese RTA cabinets and have been faced with fighting tough, yet unanticipated, competitors.
These domestic producers started their own RTA cabinet production lines; however, the startup costs were high in addition to a constant increase in raw material costs while others in the industry already had a start with their superior and affordable products.
On the other hand, the timing of anti-Chinese product origin and trade policy in the U.S. has benefited domestic producers. Recently, the U.S. government introduced 10 percent, and subsequently 25 percent tariffs on China RTA cabinets as a part of a bigger tariff package on Chinese products imported to the U.S.
Recently, a group of 27 American kitchen cabinet manufacturers formed an alliance called the American Kitchen Cabinet Alliance (AKCA) that filed an antidumping and countervailing duty petition against China in March 2019. They asked to penalize Chinese merchandise with an average 216 percent tariff on kitchen cabinets.
AKCA wants the U.S. government to initiate an investigation on Made in China wooden cabinetry and vanities, hoping to pressure the Commission to slap anti-dumping charges. If the U.S. government should give in to these requests by April of the coming year, this would conclude the prosperity of the RTA market in the U.S. for an indefinite time.
The pros and cons of tariffs
While the allure of tariffs can be enticing to some, the introduction of such practices carries a heavy burden and lasting financial implications for not only the RTA industry but also end consumers.
Tariffs can serve as a short-term increase in duties, be used as an effective bargaining chip in politics, and level the playing field for national companies with traditionally higher labor costs. However, while the intent of tariffs might be noble, in the end they often come at a high cost for the greater public.
Tariffs skew the delicate free market equilibrium, whereby government policy dictates to some degree supply and demand. American end consumers have seen significantly decreased availability of cabinetry products, both in range and quantities. Prices are increased as the majority of companies don’t want to absorb costs hitting their bottom line and choose to rather pass these costs on to end consumers. With an increase in costs and limitation of supply, it follows that demand also weakens.
Implementation of tariffs and reaction of RTA industry (wholesalers, retailers, contactors): Passing on or absorbing costs
Phase 1 – September 24, 2018, 10 percent tariff on all product arriving and in transit.
Following the first introduction of tariffs, many U.S. suppliers applied a “tariff surcharge” on orders, passing on the cost to the wholesaler, dealer, contractor, and ultimately, consumer. National brands such as CNC Cabinetry started charging a “Tariff Charge” on all invoices at 6.5 percent. KCD, another national brand, applied a 5 percent tariff surcharge on October 1, 2018.
A few companies absorbed the initial 10 percent tariff. Instead of passing on the cost to their partners and consumers, they made internal adjustments, went lean, reduced administrative processes, and restructured and streamlined operations. Regional companies, wholesalers, dealers, and contractors all had the same choice, they could absorb the cost or pass it on. Many businesses chose to do the latter, despite enjoying a comfortable profit margin which could withstand such an imposition.
Phase 2 – May 10, 2019, the tariff increased from 10 percent to 25 percent
Most companies increased their prices again and, interestingly, even some companies that absorbed the initial costs changed their policy with Phase 2. US Cabinet Depot increased prices to its dealers justifying the price by stating, “At this time the allotted industry increases have created a level of expenses that require us to increases the MSRP to maintain the same level of quality, service, and expectations our dealers have become accustomed to.” CNC Cabinetry increased their “Tariff Charge” on all invoices from 6.5 percent to 12.5 percent. KCD added an additional 10 percent to their existing 5 percent tariff surcharge, totaling tariff surcharges to 15 percent.
Regional companies, such as ASIA Cabinetry Inc., which did not increase their prices initially, also sent out emails to their partners and consumers informing them of an increase in prices between 10-15 percent in Phase 2. Only a small percentage of companies absorbed the costs again, without any guarantees that they will continue to do so in the future.
Thus, it would appear that tariffs are not the end of the RTA industry. As long as companies can pass on the expense or restructure operations, the industry is still alive. Furthermore, since the tariffs are aimed at one country, many RTA factories have chosen to relocate operations and factories to neighboring countries. The result will be an increase in costs for U.S. companies and a shortage of supply for a short period while factories are set up. U.S. customers will end up footing the bill as they have become accustomed to paying more for RTA cabinets.
While tariffs pose a setback for RTA producers, the true challenger to the RTA industry will be the anti-dumping petition filed by the American Kitchen Cabinet Alliance on March 2019. The anti-dumping petition could actually signal the end of RTA cabinets.
Additional viewpoints and opinions are invited.
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