A Rough Patch for Residential Furniture

Home furniture makers and the AFMA share concern for the months ahead, but also hope that the end of the year will bring better times.

By Greg Landgraf

The home office is an emerging market, but also one that draws competition from across traditional industry segment lines. In W&WP’s surveys, residential furniture makers indicated more involvement in the market than contract furniture makers did. Shown are pieces from Bush Furniture’s Citizen Collection, including the WC01711 L-Desk, WC01712 Hutch and WC01780 Lateral File.  

The year 2001 will be no better than just “O.K.,” according to respondents in Wood & Wood Products’ 13th annual survey of the residential furniture industry. More than half said that they expect their business in 2001 will be “O.K.” or worse — and not a single respondent predicted “excellent” sales. That’s a stark reversal from 2000, which nearly two-thirds of respondents described as “very good” or “excellent.”

The American Furniture Manufacturers Assn. echoes our survey respondents’ concerns. Like several other industry associations that track sales in their particular market segments, the AFMA recently revised its prediction of industry shipments for 2001 downward. AFMA’s most recent estimate, released in April, anticipates a 2.7% drop in residential furniture shipments, to $24.89 billion this year.

The growth rate of industry shipments has in fact been dropping sharply for two years. Both 1998 and 1999 saw furniture shipments increasing by more than 8%, while growth was down to 2.4% in 2000.

As a whole, however, W&WP’s Top 25 residential furniture manufacturers fared far better than that. Ten posted double-digit sales gains, and 14 bested AFMA’s reported 2.4% growth rate in 2000.

Early reports for this year, even among the largest companies, are not so strong. Stanley Furniture of Stanleytown, VA, for example, broke a streak of 21 consecutive quarters of sales growth in the final quarter of last year with a 5.2% decrease. The sales decrease worsened to 8.3% in the first quarter, and in a press release about the results, the company said it expects second quarter sales to suffer a double-digit loss compared to the second quarter of 2000. “As a result of the continued unsettled business environment and lower consumer confidence, we now do not expect business conditions to improve before the fourth quarter of 2001,” Albert Prillaman, Stanley chairman and CEO, said in the release.

Most of the publicly held companies in the survey, including Furniture Brands International, Bush Industries, La-Z-Boy and Bassett Furniture, reported quarter-over-quarter sales decreases this year. One of the few exceptions is Dorel Industries, which reported a 39% increase in sales during the first three months of this year and expects earnings to rise from $1.03 per share in 2000 to more than $1.70 this year. Part of that increase stems from Dorel’s acquisitions and diversification into a wide field of markets, particularly in its Juvenile Group.

Ethan Allen also reported record sales for the first three months of the year, but the company said net earnings dropped due to lower-margin products, plant expansion costs and increasing fuel, utilities and medical costs.

Open About Offshore Outsourcing

Eighteen of 35 respondents said that they source parts or complete furniture from foreign countries. That’s hardly a surprising result, considering the trend throughout all segments of the U.S. economy to outsource parts in hopes of finding adequate quality at the cheapest price.

More surprising is the willingness of respondents to acknowledge their reliance on China as a source. Seven companies said they purchased from China, which led the way as a source by a wide margin. Mexico, Canada, The Philippines, Malaysia, Taiwan, Indonesia, Spain and Italy each were listed by two respondents, while Japan, Honduras, Finland and Vietnam are each utilized by a single company. Only four respondents declined to specify to which countries they outsource.

Respondents’ openness about their sources seems to represent a destigmatization about purchasing overseas, and particularly from China.

Top Concerns Tied Together

Unlike W&WP’s other Top 25 surveys this year, most of the residential furniture makers’ responses to “What are your company’s top concerns?” fell into just two categories: imports and the economy.

The most commonly listed response was competing with imports. The economy, on its own, was listed only three times, but many other respondents expressed concern for issues closely related to the economy.

For example, John Ong, director of investor relations of Monroe, MI-based La-Z-Boy Inc., responded that distribution was suffering as major retailers scale back or close their doors altogether, like Montgomery Ward and Heilig-Meyers both did earlier this year. Other respondents reported simply the challenge of increasing sales or containing costs.

Last year’s top concern, employee recruitment and retention, ranked third this year, but the other top concerns from last year — worker’s compensation and wood supply — did not even register as a blip on this year’s survey.

Home Office or Home Office?

Respondents to the Top 25 residential furniture maker’s survey seem to be a half-step up on their contract furniture counterparts when it comes to tackling the small office/home office market. Among residential furniture makers, 58% said they currently manufacture for the SOHO market or are considering doing so in the future. That’s slightly higher than the 52% of contract furniture makers who said they were targeting or considering that market.

Residential furniture makers in our surveys also put slightly more importance on their SOHO efforts. The contract furniture makers who said they do make SOHO furniture were evenly split between describing the market as “less important” and “equally important” than other segments as a growth area. Only one contract respondent said it was “more important” than other areas.

Among residential furniture manufacturers, on the other hand, 15 of 21 who build for the SOHO market said it was at least equally important as other market segments.

Joe Maffia and Hannah Miller contributed to this report.

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