The southern China city of Shenzhen is teeming with assembly plants. Row after row of nondescript concrete five-story buildings house small assembly factories on every floor.
While visiting Shenzhen in late January 2000, we decided to enter one of the buildings to see what the factories looked like inside. When we reached the third floor, we found the doors wide open, and so we went in.
It was an apparel factory where young women were sewing two-piece women's outfits, a matching white jacket and skirt carrying the “Apart" label, which is owned by Spiegel and sold through their catalogs.
There was a large hand-written cardboard sign on the wall letting the women know that they would be working until 11:00 p.m. every night that month, seven days a week. They started work at 8:00 a.m. and if they arrived a minute late, they would be fined two hours' wages.
A middle-aged man approached us. He explained that he was the manufacturer; these were his clothes, but that this was not his factory. He was only subcontracting some overflow production here. His factory, which was much larger, was 60 or 70 kilometers away in Dongguan City. He also was operating his plant at full capacity, from 8:00 a.m. to 11:00 p.m., seven days a week.
Thinking we were U.S. buyers, he was very anxious to speak. He said that his total cost for each two-piece outfit was 200 rmb, or $24.10 U.S.-but that included everything: fabric, labor, shipping costs, even the cost of the quota. He was manufacturing the clothing for a company in Hong Kong which had the Spiegel contract.
For his costs, some overhead and his profit, he tacked on another 100 rmb, or $12.05 U.S., bringing the total cost of the two-piece outfit to 300 rmb, or $36.14. Presumably that is what he charged the company in Hong Kong.
Questioned about his labor costs, he said his fully-loaded labor cost, including all direct and indirect expenses such as social security benefits, came to 7 rmb, or 84 cents per piece for either the jacket or the skirt. Given that this Spiegel blazer retails for $99 in the U.S., the fully-loaded labor cost to produce it in China amounts to just 8/10ths of one percent of the price.
When we told him his prices seemed a little steep, he got angry and told us to go further north into China if we wanted cheaper prices. However, he soon warmed up again and invited us to visit his factory in Dongguan, which we could not do, since it lay outside the area permitted by our visas.
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Spiegel's first quarter 2000 revenues were up 14 percent, to $714.9 million, with a net profit of $20.2 million. Catalogue sales make up nearly half of Spiegel's total sales. |