Home > Latest News > EXCLUSIVE:Supply Chain Facing Major Problems As Chinese Factories Stop Credit

EXCLUSIVE:Supply Chain Facing Major Problems As Chinese Factories Stop Credit

Consumer electronics, audio and appliance distributors are facing new supply issue with Chinese factories now demanding “cash up front”, at the same time under threat insurance Companies are refusing to insure retailers.

Another issue facing suppliers is that retailers such as Harvey Norman are preserving cash by demanding extended trading terms, they are also holding less stock in stores despite supply issues.

An investigation by ChannelNews has revealed that some distributors who in the past have been given credit by Chinese factories allowing them to sell on consignment with retailers such as Big W, David Jones and Myer are now having to pay up front. We have also been told by several Melbourne based suppliers that the new COVID-19 lockdown in Victoria is “worse than previous lockdown” and that consumers are now panicking about their future.

New payment terms by Chinese factories and retailers has resulted in some distributors losing shelf space at key retailers.

As one major distributor said, ‘Money talks Bullshit walks”.

“Factories in China are now demanding payment before a product is manufactured. If you can pay your products are shipped and one has supply” they added.

Sydney based distributors such as Laser Corporation who has seen an expansion of their product offering at the likes of Big W said that they are expanding their operations in China, with the recruitment of additional management.

“We are cashed up and we can pay for stock” said Laser Corporation CEO Chris Lau.

On the issue of sourcing and the dealing with Chinese manufacturers via a video call Lau said “We need to ensure quality as this is hard to do on a video call, we also need to constantly conduct compliance checks which is why we have expanded our Chinese operation”.

This week Laser Corporation announced that they had hired Liam O’Reilly, who will lead Laser’s China sourcing office. Previously he worked for Brisbane based Crest.

Another distributor who did not want to be named said “Cashed up distributors and those with strong balance sheets are set to do well as they will have stock and insurance cover, the issue is that several retailers are now coming under pressure, insurance Companies are refusing cover and we are facing new demands from the likes of Harvey Norman” they said.

QBE Insurance one of Australia’s largest insurers will no longer provide cover for distributors of struggling retailers Myer and David Jones after deeming the traditional department store sector too risky to insure.

In a letter from QBE Insurance to suppliers, the $13.2 billion insurer said it would no longer provide trade credit insurance for Myer and David Jones due to concerns the two retailers may not survive the COVID-19 crisis.

Paul Riachi the CEO of the Indi Group of Companies who also owns specialist audio and home entertainment stores in Victoria said, “We are having no problems with stock as we by majority deal with European suppliers”.

He claimed that brands such as Canton and Loewe were now sourcing components out of Taiwan while manufacturing in European Countries.

“What we are seeing is a significant downturn in Victoria. The second lockdown is not like the first. People fear for their future and we are not seeing the elevated demand that we saw with the first lockdown”.

ChannelNews understands that one global brand that is doing it tough is UK based Q Acoustics who has had problems prior to COVID-19 paying their Chinese factories.

Riachi who use to distribute the Q Acoustics brand said “We are not surprised to hear that Q Acoustics is struggling. We had major supply issues with this Company prior to COVID-19 and I suspect that several UK sound brands are going to face problems going forward as the UK market has been smashed by COVID-19 lockdowns”.

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