China and tariffs

Discuss Spyderco's products and history.
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awa54
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Re: China and tariffs

Postby awa54 » Tue Nov 27, 2018 6:35 pm

I thought LC200N was a US sourced steel?!?

The real killer in this situation has to be the waiting game... will the tariffs fizzle out soon and business return to "normal" or will this phase morph into a major re-positioning on China trade? I would think this is a prime situation to do lots of numbers analysis on, then pick a point beyond which sustained tariffs force a re-thinking of production location and/or market position for the Value Line and Byrd knives.

Without data on margin, gross sales and logistics costs, it's hard to know what those lines are worth to you and how much you can/should bend your business model to keep them as they are.

I feel like they are great value as they stand pricing-wise and would still likely be solid values in the eyes of us Spyderco converts, but potential new customers might be tempted to take a step down to another maker's budget product that is now $20 cheaper instead of $8 cheaper...

I only own one Chinese made Spydie (Polestar) and I bought that used, so my Spyderco purchasing habits won't change at all :D

Not on the level of an Elon Musk tweet Sal, but your revelation that LC200N may be having a price increase was the final push that got me to buy a Caribbean, well played sir! ;)
Last edited by awa54 on Tue Nov 27, 2018 6:43 pm, edited 1 time in total.
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Re: China and tariffs

Postby ZrowsN1s » Tue Nov 27, 2018 6:39 pm

I'd like to see Spyderco expand it's U.S. manufacturing.
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Re: China and tariffs

Postby RobDigi » Tue Nov 27, 2018 6:54 pm

Straight up Sal,

I have some pretty good knives of all sorts made in China that were a real bargain.
I have enjoyed them...
but I must say that for what ever reason tangible or intangible,
I don't enjoy owning them as much as a knife with USA,Taiwan, Japan or Italy printed on it.

If there were a increase 20% making a $20 now $24 then I probably still buy...but if that knife became $30-35-40.
I will adjust my buying according to the market if their still very inexpensive ...sure I buy,
but my interest would diminish just as fast as the price increases!
Then I just buy less knives ...save my money and buy USA made.
The only reason to buy China made knives is thier cheap!!
ain't that the point lol

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Re: China and tariffs

Postby SF Native » Tue Nov 27, 2018 7:20 pm

Honestly, I’m not really the target market for these knives. The lc200n, well, that is my market. But we have seen many new and active members on this forum start with a tenacious or other gateway knife. It would be a real loss if you can’t continue to reach these customers.

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Re: China and tariffs

Postby ferider » Tue Nov 27, 2018 7:38 pm

500Nitro wrote:
Tue Nov 27, 2018 6:01 pm
ferider wrote:
Tue Nov 27, 2018 5:47 pm
Well, the natural question is: for the additional 25% in end-user price, could you manufacture these models with enough ROI in the US, Sal ?
25% import tariff doesn't necessarily relate to a 25% increase in the retail cost price.

My understanding of the 25% import tariff is it is on the import cost price. I'm happy to be corrected.
You might be right, probably the truth is somewhere in between. We'll see when MSRP increases.

Independent of the actual percentage, tariffs are a consumer tax to encourage local production, so I am wondering if it will for Spyderco. Only Spyderco will know what the additional investment and running costs would be, to move some manufacturing into the US. There are also other factors: we see numerous Chinese Spyderco copies: would the number of these decrease with more US production ? Not interested in detailed numbers of course, just in a nutshell if the tariff strategy will work for our favorite knife manufacturer ....

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Re: China and tariffs

Postby 500Nitro » Tue Nov 27, 2018 7:46 pm

"we see numerous Chinese Spyderco copies: would the number of these decrease with more US production ?"

The problem is, my understanding is INDIVIDUAL sales from China don't get caught on import. So IMHO the price difference increases.

In Australia now, the GST (VAT) threshold used to be $1000 on ANY import. Now the 10% GST is charge on every import (or sale at Amazon, eBay etc).

As an aside, Re Tariffs (import duties), they have been decreasing for 20 years. I used to pay 5-25% on import from China and the US, now it's 0% but have to pay the 10% GST.
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Re: China and tariffs

Postby zhyla » Tue Nov 27, 2018 8:09 pm

So much focus on the politics of this issue. If Sal said "production costs in China are going up 25%, tell us your thoughts", would that be easier to stay on topic?

So let's just think about the Spyderco Tenacious. It has a street of ~$48 currently. Let's assume that goes up 25%. I'm not sure that's actually how it works. Is the 25% on the street price? Is it on the production cost? But let's just assume the worst case. The Tenacious now costs $60. Today, we would think that's absurd since you can buy an ______ knife for $35, but that $35 knife is now $44 since it was from China also.

A $60 Tenacious is still a lot of knife for less than half what a PM2 costs. I think it still works.

I still don't quite understand Spyderco's Chinese steel strategy. A lot of makers are pushing D2 steel instead of 8Cr and I think it is perceived as a quality steel in the knife community. If it costs a little more it might be worth it -- a $65 D2 Tenacious feels a lot better to me than a $60 8Cr Tenacious.

I don't really want to buy any Chinese Spydercos though. Not because of some political bent, but because they're boring. I have a couple, they're great users, but there's no reason I'd want to buy more. They're all G-10 slab liner locks. I know they probably have to be to meet the production scale benefits, but they just don't speak to me.

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Re: China and tariffs

Postby sal » Tue Nov 27, 2018 8:39 pm

Hi DSK,

Welcome to our forum.

sal

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Re: China and tariffs

Postby anteck7 » Tue Nov 27, 2018 9:35 pm

Thoughts with some pretty heavy assumptions. I certainly welcome corrections. I've put a couple notes (*#) in areas where I felt further detail may be warranted.

1. The 20% duty on a chinese produced spyderco is based on the the price paid to the producer of the knife, not the price a consumer would pay. So while you as a consumer may pay $50 to BladeHQ for a chinese made 8CR13MOV spyderco, BladeHQ pays $25 to spyderco for the knife. Spyderco probably pays ~$5 to produce the knife(*1). Sotderco only has to pay the %20 tarriff on $5 not $50. The actual cost increase to spyderco is $1, not $10.

2. This cost I feel can be distributed between spyderco, vendors, as well as consumers. The fact that spyderco enforces MAP means that some vendors could/would already sell under the enforced prices. I would think vendors could bear some of the burden.

3. Spyderco as a brand benefits from having cheap affordable entry level knives in places like walmart and big box stores. It builds the brand name, builds loyalty, and my result in larger purchases of more expensive knives.

4. I worry about how this might provide some advantage to manufacturers who sell directly from China instead of importing knives and going though normal distribution/sales chain. However Trump is also pushing to eliminate the mail subsidies that give these vendors this advantage, shipping costs from China to individuals in the US are likely to increase significantly and probably more than the tariff.

5. I like the idea that it might make US priced knives slightly more cost competitive, if they use steels manufactured in the US. Kershaw produces a number of entry level knives in the USA.

6. I think this might be an opportunity for companies to partner with domestic steel manufacturers such as Carpenter and Crucible (*2)

7. I think it encourages companies like Spyderco to invest in automation/mechanization to make up for higher US Labor costs. This is going to happen one way or another. either in China or in the USA. This may not practical for a company the size of spyderco to make such a large investment.





(*1): Note I don't view selling a knife that costs $5 to make for $50 as gouging. I'm simply referring to the actual cost to produce the knife. Spyderco has to charge enough to make up for R&D, spin up, testing warranty support, distribution, marketing et cetera.

(*2): I'm unsure if spyderco does enough volume where such partnership would be seen as valuable from the production companies.

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Re: China and tariffs

Postby SF Native » Tue Nov 27, 2018 9:40 pm

zhyla wrote:
Tue Nov 27, 2018 8:09 pm
So much focus on the politics of this issue. If Sal said "production costs in China are going up 25%, tell us your thoughts", would that be easier to stay on topic?

A $60 Tenacious is still a lot of knife for less than half what a PM2 costs. I think it still works.
Well this Is politics. This not free market changes driving the price up. This is political decision that is meant to create more jobs in the USA. But, like you said, a $60 tenacious is really just competition for a $75 delica, not competition for a pm2. I would rather have the delica, which shifts sales to japan, not the USA.

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Re: China and tariffs

Postby Vivi » Tue Nov 27, 2018 9:49 pm

Without getting too political, I will say the more I learn about China's trade policies, the less inclined I am to purchase Chinese goods. Knives included.

In fact, I will go as far to say that I have never spent more than $50 on a chinese made knife, and I can't see myself ever doing so.

I would rather spend the extra $$ on a japanese made FRN Spyderco if I'm looking for an inexpensive knife. If I want a cheap fixed blade, there are tons of US made options in the $40-80 range, which is cheap enough I don't feel the need to consider chinese made fixed blades.
zhyla wrote:
Tue Nov 27, 2018 8:09 pm
I still don't quite understand Spyderco's Chinese steel strategy. A lot of makers are pushing D2 steel instead of 8Cr and I think it is perceived as a quality steel in the knife community. If it costs a little more it might be worth it -- a $65 D2 Tenacious feels a lot better to me than a $60 8Cr Tenacious.
Many, if not most chinese folders labelled D2, are not D2. Just like when Sal started making Byrds and chinese makers claimed to be working with 440C, it was not 440C.

I think a lot of people focus too much on materials rather than design. G10 & "D2" doesn't mean the knife is a clear cut upgrade over FRN & 8Cr, you have to consider design, ergonomics, lock reliability, etc.

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Re: China and tariffs

Postby cbrstar » Tue Nov 27, 2018 9:55 pm

I think China just like Japan and Taiwan in the past will have to increase their quality to remain competitive. I feel like knives like the Alcyone are already decent quality and will fair a little better.

But some questions I have.

Is there a huge markup in knives? I worked in the watch repair/jewelry business and there was at least a %300 markup. So if something like the price of gold jumped we would absorb some of that as we were still making a killing. So should a 25% increase at the manufacturing level automatically mean a 25% increase at retail?

Being a Canadian were we don't have the tariffs would I still be expected to pay them. Do the knives go to America first and then to Canada?

How does it effect Chinese knives that are made with American steel like the Alcyone?

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Re: China and tariffs

Postby anycal » Tue Nov 27, 2018 10:00 pm

So does this mean that the increased cost of business will be spread across all of Spyderco products? Regardless of county of manufacture? That is the question.

The tariffs are sold as bringing jobs back. That's not a small task for an established business. Companies will keep doing business as usual and move the numbers around. Those finance guys are pretty creative.

That has been my experience, anyways.
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Re: China and tariffs

Postby captnvegtble » Tue Nov 27, 2018 10:20 pm

Open up a HQ outside of the U.S. and take orders/ship from there?!?

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Re: China and tariffs

Postby 500Nitro » Tue Nov 27, 2018 10:22 pm

Bring jobs back ? I'd love to ask why Apple doesn't make iPhones etc in the US!
Minimum wage US $8 or so, minimum wage Australia $18.97, min wage China, 0.02 cents an hour lol

It's not that bad but it's close to it.
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Re: China and tariffs

Postby sal » Tue Nov 27, 2018 10:27 pm

Hi Anteck,

Welcome to our forum and thanx for the input.

1. Your numbers are off, but the principal is sound.
2. We don't enforce prices, only advertising. Most vendors also have their own issues as the tariffs are affecting their sales as well.
3. Correct.
4. China to US direct sales are a big issue, especially with all of the counterfeits.
5. Chinese Yuan to US dollar is 6/1. That's a pretty big gap. Eric is working on some entry level US made models.
6. Already being done. In fact Spyderco helped Carpenter develop their blade steels.
7. Spyderco mfg is pretty hi-tech. Lasers and robots. We hold 3/10,000 on our lock-backs.

Hi Anycal,

We try to keep costs associated with a country kept to that country's products.

I also appreciate all of the comments from everyone. They give me a better understanding of the ELU's thoughts and feelings on this issue.

sal

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Re: China and tariffs

Postby zhyla » Tue Nov 27, 2018 11:01 pm

Vivi wrote:
Tue Nov 27, 2018 9:49 pm
Many, if not most chinese folders labelled D2, are not D2. Just like when Sal started making Byrds and chinese makers claimed to be working with 440C, it was not 440C.
Sal May have some concrete facts, but my understanding is D2 is a tool steel with fairly large ranges of alloy content and the Chinese D2 probably meets the criteria just fine. Consensus seems to be that D2 as marketed by reputable Chinese manufacturers performs well.

Last time I brought this up Sal countered that he’d rather step up to CTS-XHP than D2. I don’t know if that costs a lot or a little.

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Re: China and tariffs

Postby Liquid Cobra » Tue Nov 27, 2018 11:05 pm

As someone quickly mentioned in this thread already, if Chinese produced Spyderco knives go up because of this, won’t all the other budget knives of other companies as well? That should help level the playing field if they all go up.

The knives made in China don’t appeal to me at all. At this point in the hobby I pretty much only buy knives made by Spyderco from Golden or Taichung and sometimes Italy. The Chinese made knives use steel that doesn’t appeal to me and the Japan made knives are priced too high for what I’m getting when compared to something made in Golden. I do recommend the Tenacious to non knife people as a great value for a well made knife. If they go up in price I don’t think my friends would continue to be willing to buy it though. In their mind, $60 is a lot of money for a pocket knife they’re likely to lose.

Hearing that Eric is looking into some low cost American made knives is really interesting. I’m gonna keep my eye out for more news on that.
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Re: China and tariffs

Postby Tucson Tom » Tue Nov 27, 2018 11:11 pm

zhyla wrote:
Tue Nov 27, 2018 8:09 pm

So let's just think about the Spyderco Tenacious. It has a street of ~$48 currently. Let's assume that goes up 25%. I'm not sure that's actually how it works. Is the 25% on the street price? Is it on the production cost? But let's just assume the worst case. The Tenacious now costs $60. Today, we would think that's absurd since you can buy an ______ knife for $35, but that $35 knife is now $44 since it was from China also.

A $60 Tenacious is still a lot of knife for less than half what a PM2 costs. I think it still works.

I still don't quite understand Spyderco's Chinese steel strategy. A lot of makers are pushing D2 steel instead of 8Cr and I think it is perceived as a quality steel in the knife community. If it costs a little more it might be worth it -- a $65 D2 Tenacious feels a lot better to me than a $60 8Cr Tenacious.
I think Zhyla has done the math about the same as I am doing in my head. A Tenacious is certainly my test case knife from mainland China. I think it is a fantastic bargain at $48 or $60. Whether John Q Knifebuyer sees that the same say I do, I can't say. I own a Tenacious and have purchased and given several as gifts -- but am thinking I am done with that knife series. A D2 Tenacious might get me interested all over again, but we are veering off topic. A bump of $12 would not have affected my thinking, they are still high quality products and amazing bargains.

But this is propagating the 25 percent markup to full retail. As someone else has pointed out, the tariff only affects the price further back in the supply chain, and typical retail doubles the price paid by the retailer (I don't know if this is the case with knives), so the bump would really only be $6 if all of it was passed on to the end user, and this makes it even less of a big deal.

I don't understand at all why the tariffs affect LC200N -- I thought that was made in the USA ???

I certainly think that the cost of tariffs should get passed to the end user. The question for Spyderco would I guess be if this is going to make their knives from China less competitive. It doesn't seem so to me. Compared to other knives from China, they have all been bumped up in price the same amount, and the prices are still amazing bargains compared to knives from the USA or Taiwan.

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Re: China and tariffs

Postby sal » Wed Nov 28, 2018 12:03 am

Hi Tom,

LC is made in Europe.

sal


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