Delroy Buckham, an employee at Therapedic Caribbean Limited, prepares foam on a roll to produce quilts for padding on mattresses.
Manufacturing in peril
McIntosh Bedding’s collapse exposes a broken system
A conversation with any local bedding manufacturer reveals the same frustration: Weak support from Government policies and unfair competition from duty-free imports. But only one — who requested anonymity — dared to speak out on talks of under-invoicing said to be happening at the ports.
“They don’t want to talk…everybody has their friends,” he admitted.
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The whispers of discontent have long been there. But now, with McIntosh Bedding’s collapse, the manufacturers say it has become impossible to ignore Government’s inaction to calls made more than a decade ago.
After more than six decades in operation, McIntosh Bedding, manufacturer and distributor of Sealy Posturepedic, announced the closure of its business last December. The company has declined to disclose specifics leading up to its closure but said that despite management’s best efforts, it was not able to recover from decade-old challenges within the industry.
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Added pressure brought on by the COVID-19 pandemic was what pushed the company into death valley. It’s unclear how many people were affected by the closure.
McIntosh Bedding’s downfall is indicative of a larger crisis gripping Jamaica’s manufacturing sector, according to chairman and CEO of Boss Furniture Omar Azan.
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“There’s no Government in Jamaica, whether it be green or orange, that I know ever pushed and facilitated the manufacturing sector in a real way. Minister Robert Lightbourne was before my time, but he came the closest…
“But there’s never been a true understanding of the manufacturing sector by any Government, and the push to really drive the sector. And that is why we are in the position that we’re in as a country,” he told the Jamaica Observer.
Lightbourne was minister of Trade and Industry in the Jamaica Labour Party (JLP) Government led by Prime Minister Alexander Bustamente in the 1960s. During his tenure Jamaica experienced significant economic growth up to 1972 when the JLP lost the general election to the People’s National Party.
Despite repeated warnings from industry stakeholders, they say that regulatory action remains weak. Trade authorities have made no significant progress in stamping out what some surmise to be customs fraud, and local manufacturers are left to shoulder the burden.
“There is no other way to explain the prices of some of these mattresses on the retail market. I have purchased them from these independent stores and pulled them apart, and the material cost alone to make these mattresses is more than what they are being sold for,” said the manufacturer who declined to be named.
“Even if the products were being purchased out of China, it still could not be sold for that price if they paid the respective import duties. There is no other explanation and this creates an uneven playing field,” he continued. “You have mattresses coming into Jamaica being invoiced at $50 that cost $500 each, for example. Yes, Customs may have caught one or two people doing the ‘bandooloo’ imports, but there’s so much more happening and so many people earning out of it. We need to level the playing field,“ he said, adding that the issue is not limited to the bedding industry.
“There are people that bring in premium liquor into Jamaica and don’t pay the right duty. The distributors can’t compete with the bandoloo imports coming in. It’s no different for the bedding industry,” the manufacturer reasoned.
In response to the queries sent by the Jamaica Observer regarding concerns about under-invoicing at the ports the Jamaica Customs Agency (JCA) said that “without evidence these must be treated as allegations. The JCA is not able to comment on this matter without evidence” .
Urgent call for revamp of Hotel Incentive Act
Beyond trade loopholes, the Hotel Incentive Act remains a flashpoint for local industry. Originally designed to spur foreign investment in Jamaica’s tourism sector, the policy is said to be the primary source for the flood of imported goods coming into the island duty-free, including items readily available from Jamaican manufacturers. The issue not only affects the bed and furniture industry but extends to areas such as paint, water, uniforms, snacks, bed linens, upholstery and curtains to name a few.
Created in 1971, the Hotel Incentive Act provides a 10-year relief from General Consumption Tax (GCT), income tax and import duty to new hotels and existing hotels that have carried out expansion activities or renovations. The benefits are applicable to any company that is recognised as owner, tenant and operator. Further, under the Resort Cottages Incentives Act new resort cottages are entitled to 7 years’ relief from income tax. A resort cottage owner is also entitled to an incentive for the purpose of an extension.
“How many hotels that’s investing in Jamaica buy the local beds on an ongoing basis or buy the furniture or buy locally made products, shampoos, water, uniforms, or whatever it is? How many of them are buying locally made products? Not enough,” Azan said.
“And I’m not blaming Government entirely, because I know they’re trying to create investments in tourism; but the same way you’re doing that in tourism, you need to do it in farming, manufacturing and the other sectors. It’s always the BPO sector and the hotel industry that’s being incentivised…the same way they find 5 or 4.5 per cent interest rates to facilitate the tourism sector, they can do the same for the manufacturing sector,” he reasoned.
Minister of Tourism Edmund Bartlett has been in the news over the past few years regarding talks the ministry is having with hoteliers, particularly the Spanish groups, about purchasing more locally made products. Despite complaints of “high” prices of goods and services in Jamaica, the hoteliers have committed to making more local purchases.
Still, only a few appear to be benefiting.
One company that has significantly benefited from the growth of hotel chains in Jamaica is the Morgan’s Group — the parent company for bed maker Therapedic Caribbean Limited. In 1999 when the RIU hotel chain first ventured into Jamaica, Morgan’s Group was the top pick to manufacture all its beds for Tropical Bay in Negril, the brand’s first hotel on the island.
“We were awarded our first major job with the help of the Jamaica Promotions Agency (Jampro). The company heads walked through our plant, they liked what they saw on a display at the time and we made a few trips to the grid to discuss the contract, submitted quotes and everything, and we were successful,” Marketing Director Aswad Morgan recalled during an interview with the Business Observer earlier this month.
“We had to produce beds for 396 rooms and delivered under six weeks. They were very impressed,” he continued. Since then, the company has landed jobs from Jewel hotel, Bahia Principe, Golden Eye, Altamont Hotel, Melia Braco and more recently Montego Bay-based DeJa Resorts.
But even with all the successes that the Morgan’s Group has had over its 25 years in operation, Morgan believes that much more can be done to support local businesses.
A study conducted by the Tourism Linkages Council in 2019 found that Jamaica’s tourism sector’s total value of demand for agricultural products amounted to $39.6 billion and a whopping $352 billion for manufactured products.
“The Hotel Incentive Act really encourages the foreign investors to buy locally, but there is no legitimisation of it. There is no legislation around it happening, and the moral suasion has simply not worked,” Private Sector Organisation of Jamaica (PSOJ) President Metry Seaga said.
“The Government has tried various things, like the linkages programme, etc but we have not made real inroads into, especially the foreign investors, purchasing from our companies…when they’re building the hotels, and then when they’re running the hotels; it just hasn’t been happening,” he continued.
One sentiment that is common across all the manufacturers is the immediate need for a revamp of the archaic Hotel Incentive Act.
“Jamaican companies are more than capable of meeting the quality, turnaround time and price. I can’t see a big hotel brand turning their back on Jamaica because they’re told that they must buy at minimum 30 per cent local content,” Morgan said.
Seaga echoed similar sentiments: “I think the time has come for us to revisit it. Jamaica is at a place now where we can be a little bit more serious about what it is that we want as a country. We’ve developed that reputation, I believe.
“In fact, we were there long ago. We just don’t know our worth. Jamaica is a gem. Jamaica is a place where the foreign investors make the most money of any of their locations. Everybody wants to come here. We have a lot to offer, but it’s like we forget that when we are negotiating with foreign investors and we give away the shop,” he said.
What’s clear is that McIntosh Bedding wasn’t the only company feeling the pinch from the years-long industry challenges. Another bedding manufacturer — Island Dreams — which has been in business for 24 years, was forced to revamp its business model in response to the challenges.
With the influx of low-cost imported mattresses crippling its sales in addition to little inroads with hotel chains, the company saw a drastic decline in demand for its bedding products. As a result, Island Dreams had to cut nearly half of its bedding staff from a high of 106 full time and contract workers to 40 employes over the past five years. Further, founder of Island Dreams Radcliffe Sherland restructured the business to focus on furniture manufacturing to stay afloat.
Today, living room suites account for 70 per cent of Island Dream’s operations, while bedding has been reduced to just 30 per cent — a complete reversal from its previous structure. It has also shifted focus from the hotel sector to the retail trade.
“Our staff has been cut about 45 per cent because we don’t have any bedding business. Decimated to the point where we just couldn’t survive. We survived because we diversified and moved into living room suites,” Sherland told the Business Observer recently.
Adaptation key to survival
Seaga, while acknowledging the challenges faced by McIntosh Bedding, took a broader view, arguing that adaptation was key to survival of the company in a shifting economic landscape. According to the PSOJ president, successful businesses have been those that responded proactively to changing industry conditions, whether through diversification, modernisation, or strategic alliances.
“I think that it is a result of the policies that have taken place over the years, as well as there are some responsibilities that have been borne by the company and its lack of innovation and its lack of changing with the times,” he said. “It’s a good lesson for all of us to learn how we need to move with the times and change and grow and do things that need to be done to maintain our businesses.”
Azan is confident that the remaining players in the bedding industry can more than fulfil the demands from the local market even as the companies seek business outside of Jamaica.
“We expanded years ago to facilitate the tourism growth, but tourism went and bought all the mattresses overseas. Our company alone can do 400, 500 mattresses a day; and there’s no hotel in Jamaica can take the capacity of our factories,” Azan said.
“Right now, we’re working three and four days a week when we should really be working six days a week. And we’re only working one shift, manufacturers work two and three shifts. Morgan’s probably produces three days a week and then you have Jamaica Bedding and Island Dreams so there’s more than sufficient capacity locally,” he added.
Aswad Morgan, director of marketing and sales at Morgan’s Group of Companies
