Rising gas prices and soaring energy costs aren’t affecting retailers only on the sales floor. According to our third annual survey of retail fixture specifiers and fixture suppliers, cost crunches continue to drive how retailers get fixtures into their stores. Increasingly, they’re reaching out across the ocean, to where materials and labor are cheaper, technology is up to snuff and quality and reliability are improving.

There’s a growing global economy on everybody’s radar these days, and growth opportunities for retailers abound all over the world.

These global opportunities, however, aren’t the only factors shaping what many survey respondents expect to be a better-than-ever year for business, though there are a few cloudy spots darkening the horizon. Here’s what the fixture industry has to say about the trends impacting their business.

ALL EYES ON CHINA

Overseas sourcing has grown considerably within the past 10 years, for a variety of reasons. In some cases, North American-based vendors have instigated that trend. In 2000, Nordstrom’s main supplier of metal fixtures asked if it could begin providing chain shelving and wall hardware made in China. Lured by the prospect of prices that were 10 to 20 percent lower than what they were used to paying, Nordstrom agreed to give the overseas items a try.

Susan Morton, Nordstrom’s director, interior design and concepts, says her company subsequently found that the imported displays “met all of our standards for custom finishes and other specifications.” So Nordstrom also began sourcing some of its casework from China. “So far, so good,” says Morton of the retailer’s experience in sourcing fixtures from half a world away.

Finish Line was also approached by its U.S.-based vendor about sourcing fixtures from Asia. “This was an initiative on the part of our vendor to lower our costs,” says Ken Chance, Finish Line’s director, construction and store development.

This retailer, too, has been pleased with the quality of those fixtures, though Chance notes that ongoing vigilance on the part of both manufacturing partners is needed. “With a good partner in the U.S., and attention to detail in the shop drawings and quality control at the point of manufacture, quality has not been an issue,” he says.

Clearly, the biggest potential pitfall associated with buying fixtures from so far away is the longer lead times involved in shipping the displays to their U.S. stores. And the key to avoiding that problem is planning.

“Our lead times for fixtures sourced in China are anywhere from two to six weeks longer than those in the U.S.,” says Chance. “As a result, we have to be more proactive in establishing our requirements for fixtures.”

PARTNERSHIPS A POPULAR STRATEGY

While the Nordstrom and Finish Line examples demonstrate the proactive “join-’em-before-they-beat-you” strategy some fixture makers are employing, many retailers have taken the initiative and asked their vendors to seek lower costs by looking overseas.

But no matter who suggested making the first move into international markets, it’s clear that the use of overseas fixtures in stores operated by U.S.-based retailers is widespread. On the manufacturing side, more than three-quarters of the survey respondents say their businesses have been impacted by retailers turning to foreign sources for fixtures. And when asked specifically where those offshore competitors are based respondents singled out China nine out of 10 times.

To counteract that invasion onto their traditional turf, 85 percent of manufacturer survey respondents say they’ve entered joint partnerships with China-based companies. Both partners benefit from such arrangements: The North American company gets access to a low-cost manufacturing source, and the China company gets an entrée with Western retailers that might otherwise be hesitant to work with an unknown entity.

However, some fixture makers have opted to take direct control of their China-based operations, by either buying an indigenous firm (Leggett & Platt has chosen this route) or building plants in China from the ground up (idX Corp. and Southern Imperial Inc.). Not surprisingly, these costlier strategies are typically undertaken by the industry’s bigger, deeper-pocketed firms.

What about the smaller players? Some say they’re doing just fine, thank you, by exploiting selected niches where doing business with China is too complicated or expensive. For example, Jackie Bach, ceo of M. Lavine Design Workshop, says “most of the items we manufacture – including etageres, table sets and gondolas – are quite large. The cost of shipping those items, according to weight and size, from China to the U.S. is such that we can almost always beat the price by doing it here locally.”

Fixture manufacturers of all sizes are virtually unanimous in their belief that the main reason specifiers have turned to China is price. But retailers say that’s not the sole factor.

Chico’s FAS, for instance, buys some fixtures built in Chinese factories. But “when we source an item, we choose the vendor that can meet our aesthetic needs; then price falls into line,” says Stephanie Picone, the specialty apparel retailer’s director, visual merchandising. “We do set a budget with our vendors up front, but price isn’t the ultimate determining factor.”

RETAILERS’ OVERSEAS OVERTURES

Sourcing from China is only one aspect of a retail business that’s going global. Facing a saturated home market, many U.S. store operators are looking to overseas markets to grow their businesses (with more than a third of the retailers responding to the VM+SD survey saying they are taking this path).

Best Buy, for example, recently opened a store in Shanghai – its first location outside of the U.S. – and two months later named a president of its new Best Buy Asia division. Lowe’s announced it was expanding into Mexico. And now both Lowe’s and its main rival, Home Depot, are rumored to be exploring an acquisition in the U.K. Crate & Barrel is going into Canada, Borders into India, Luxottica into South Africa, Ruby Tuesday into the Middle East, Hooters into Israel.

And more than half the fixture manufacturers surveyed say they are following their retail counterparts overseas, by bidding on jobs outside of North America. Madix, for instance, sells fixtures to retailers in 53 countries, says John Clontz, director of marketing and e-business, and that number includes deals with indigenous retailers as well as U.S.-based companies that have moved overseas.

Clontz notes that many American retailers maintain the same store footprint in global markets as they do in the U.S., which allows them to use the same store fixtures, no matter what the country. That approach allows retailers to reap economies of scale in their fixture purchases for overseas operations. Also driving global sales for U.S. companies like Madix, Clontz says, is the weaker Yankee dollar, which makes the prices of American-made products more competitive for foreign buyers.

RISING COSTS BIGGEST WORRY

Potentially offsetting that currency advantage are the higher energy and raw materials costs fixture manufacturers in this country continue to face, which they view as the biggest threat to their profitability. Steel costs more, says Jeff Uhri, Leggett & Platt Store Fixture Group’s senior vp, global business development, and so does the nickel used in chrome-plating processes.

As a result, many manufacturers are taking steps to cut their own costs. Madix, for example, “has implemented a new, more energy-efficient rinse-cycle process at the paint lines of many of our plants,” says Clontz, “and we’ve also instituted a no-running-while-idle policy for our company-owned vehicles.”

Despite all the pricing and competitive pressures they face, most fixture makers are optimistic about their prospects for the balance of 2007, with just over 70 percent of survey respondents saying they think the current year will be better than last. There seem to be three main factors for this optimism: Retailers have signaled that they expect [a] to build more new stores, [b] to increase their capital budgets and/or [c] to renovate more of their existing spaces.

But Leggett & Platt’s Uhri is among those taking a more cautious view of the coming year, believing that retailers could rein in their capital spending plans. Why? He points to some potential weaknesses in the economy in general: “Retailers are concerned that shoppers are slowing their spending, thanks to inflation concerns and a slower housing market,” he says.

Such potential problems notwithstanding, here’s some good news for fixture makers: Nearly three-fourths of the retailers we talked to say their fixture budgets will indeed be bigger this year – wherever those fixtures are built.