By Rob Leahy
GROWTH RETURNS, BUT UNEVENLY
As I prepared for the Afghanistan/USA Carpet Conference (From Sheep to Shop), held in Dubai September 20-22nd of this year I collected a large amount of information for presentation to the participants. From these data a picture appeared that was encouraging on one level, but disconcerting on another. The bright spot was that the rug business is getting its strength back after a dramatic decline in 2008-2009. The disturbing news, however, is that the hand knotted segment is not recovering. Digging deeper into the details I found indications that it may never come back.
This article originally appeared on page 22 of the December 2012 print issue of Rug News andDesign Magazine.
As world demand for the purchase of items such as area rugs improves, hand tufted rugs are taking an ever growing share of the market. Using import data to the USA, it is apparent that tufted rugs are now over 50% of the market; up from less than 25% five years ago. To further put this growth into perspective, these data are in dollars and since tufted rugs have a 3 or 4 : 1 cost relationship to hand knotted rugs, the unit growth is amazing. The unit growth is indication, though, that new consumers are coming into the US rug market.
PRODUCING COUNTRIES COMPARED
I feel that the most important factors controlling the competitive relationship between countries is relative cost advantage versus the ability to produce innovative products compared to other countries, or product differentiation. The diagram to the right depicts my view of the relationship of the world’s major shippers comparing these two metrics. While subjective, the result is a graphic representation of expected sourcing trends in the hand knotted rug business.
Beginning with the world’s largest producer of hand knotted rugs, India has increased weavers’ wages and new industries locating in carpet making districts have been attracting workers. Meanwhile, there has been a wave of product development at Indian rug makers. Notice that the arrow for India moves up in differentiation and slightly left marginally reducing the country’s former cost advantage.
The movements depicted by the arrows are relative to each other as can be seen with China compared to India. China’s weaving companies have taken themselves out of the market for handmade rugs re-directing investment to machine assisted carpets such as the hand tufted rugs. China’s arrow moves downwards in differentiation and well away from a cost advantage.
Iran is under embargo for rug shipments and legal exports to the US have dropped to zero. Banned from its most viable markets, there is little incentive to create new styles or methods. However, because of the historical diversity of the products made there, Iran’s relative position in product differentiation stays the highest.
Turkey once had an ideal balance of highly varied product and efficient low cost production. A combination of weavers retiring from the field and other job opportunities for the remaining workers has decimated the rug weaving business in Turkey. Consequently, the country has one of the most dramatic moves shown in the diagram.
Pakistan remains the world’s second largest shipper of hand knotted carpets There is no certainty as to how much of Pakistan’s shipments are native or of Afghan origin. Consequently, these countries are linked and the relationship will continue for many years into the future. Pakistani carpet companies have become more innovative and concentrated on higher value products. Pakistan moves well up the differentiation scale, but loses much of its relative cost advantage.
Afghanistan will have expanded options in product differentiation as Pakistan teaches the Afghan traders new skills and methods. Sophistication and efficiencies over time should add cost advantages and put the Afghans in a very favorable position near the optimal center point of the chart.
(Note: Nepal continues as a major factor in handknot rug production, but is not shown on the diagram because of minimal product differentiation and the uniqueness of the Tibetan weaving technique prevents country to country price comparison.)
RATIONAL EXPECTATIONS
Carpet making has been said to be the world’s second oldest profession. Selling rugs, until the past fifty or sixty years, has always been a trade based on hand-made crafts from remote and inspiring places. The business had, until recently, withstood industrialization like no other.
Having reviewed and considered the prospects for handmade carpets in all of the world’s rug producing countries I suspect that the Afghan trade is the last stand for the hand knotted carpet business. For one reason or another each of the current rug making countries has limited or is moving away from handmade production and unlikely to be able to reverse that trend. Today, competition from Pakistan and Afghanistan, by association, is preventing runaway price increases in hand knotted rugs. Higher prices for hand knotted rugs will no longer attract workers or re-investment back to the hand knotted segment. Too many other options for workers have arisen and other choices for rug consumers have been developed.
If today’s Afghan weavers are not able to pass on rug making skills to the next generation, the world’s only growth source for handmade carpets will disappear. Prolonged civil unrest in either Afghanistan or Pakistan will severely weaken the carpet trade’s relationships with buyers and the consequent lack of demand may prevent this generational knowledge transfer.
This article originally appeared on page 22 of the December 2012 print issue of Rug News andDesign Magazine.
