W&WP March 2003

One on One: RTA Furniture Gets Back on the Growth Track

O’Sullivan hopes new product development and markets will help propel the ready-to-assemble furniture industry back to historic heights.

By Bernadette Freund

Amid tough competition from imports and the bankruptcies of several major retailers, the U.S. wood RTA furniture market decreased from $3.2 billion in 2001 to $3.0 billion in 2002.

The industry is fighting back, however, by launching new product categories to lure more business and increasing automation to reduce manufacturing costs.

O’Sullivan Industries Inc., a leading manufacturer since 1954 of RTA furniture based in Lamar, MO, is helping to lead the U.S. RTA Furniture industry’s counter attack. Richard Davidson, president and CEO of O’Sullivan Industries Inc., discusses industry trends and challenges as well as how the company plans to capitalize on these trends and meet these challenges.

What is your perception of the current health of the RTA furniture industry? What types of products are hot and which are not? Why?

The company has entered the commercial office market by offering collections such as the McCormick, in a cherry finish, with the Digital Dock feature for added value.  

We believe U.S. retail dollar sales for RTA furniture declined slightly from $3.2 billion in 2001 to $3.0 billion in 2002. As with all consumer durables, our product category is very much influenced by the economy. My crystal ball says it will be at least 6 months before we see the start of a recovery. It is during down times companies like O’Sullivan have to be very cost conscious and focus on our core competencies.

At O’Sullivan, our core competencies involve the efficient processing of engineered wood panels. During the current downturn in furniture sales, we have focused some of our efforts on diversifying our product development in other product categories where our manufacturing expertise can provide value to the end user. These additional product categories include home storage and organization and commercial office furniture.

Therefore, as sales of our “bread and butter” products in home office have slowed, our ongoing product focus has become finding innovative value for every room of the house. Entertainment-based product sales have in many cases increased, so we have focused attention there.

The path back to growth really starts with product development. Our industry has the opportunity to regain historic growth levels of 5 to 7 percent.

What do you see as the biggest challenges and opportunities facing the RTA furniture industry?

Some of the biggest challenges for the domestic RTA furniture industry over the next few years will be working through our over-capacity, diversifying our product offerings to include every room in the house and further developing our advantages over imported RTA furniture.

While the production of casegoods furniture was more opportunistic for importers due to higher labor content, the labor content of RTA furniture is much lower. The result is, we have a more even playing field when competing against imports.

Hopefully, the import challenge will serve to make our company even stronger. We have some important advantages such as market knowledge, design, and proven logistical excellence. Our goal is to leverage these advantages to position O’Sullivan for renewed growth.

How much impact have furniture imports had on the U.S. RTA furniture industry?

In the 1990’s, import furniture companies began their assault on casegoods manufacturers. Today, a significant portion of casegoods furniture production has moved offshore. Now the assault has expanded to the domestic RTA furniture industry.

To date, the majority of offshore RTA furniture has been metal and glass mixed furniture. Imported furniture has always been most competitive in the areas of assembled metal and solid wood materials. However, imports of solid wood RTA furniture have been increasing too. On the other hand, larger types of furniture such as executive desks and entertainment centers, due to their size and weight, are also not a product category where import products have a competitive advantage.

O’Sullivan continues to be cost competitive against imports with engineered wood-based RTA furniture. Our extremely high level of automation eliminates the labor cost advantage of imports. We have also focused on our areas of strength in addition to driving innovations that bring value to the market. One innovation is Digital Dock, a patent-pending office furniture feature. It allows the computer user easy access to the CPU CD-ROM drive as well as to the many peripherals that connect via the CPU such as digital cameras and PDAs.

What has been the most significant change for the RTA furniture industry in the past three years?

Besides imports, the biggest change for the domestic RTA furniture industry has been the deterioration of our customer base. While many customers have cut stores and slowed store growth, others such as Montgomery Ward, Ames, Best Products, Service Merchandise, Caldor, Bradlees, etc., have been liquidated.

The challenge now is to build new product categories to increase distribution to existing customers as well as new channels of distribution.

Emerging channels of distribution for RTA furniture are home centers, value discount stores and RTA superstores. Each of these channels provides unique opportunities, as their consumer bases differ dramatically. Among the most intriguing channels is the RTA superstore, a channel solely dedicated to selling and servicing RTA furniture. Several of these have popped up around the country; the four that come to mind are Home Concept in Madison, WI, RTA Superstores in Savannah, GA, Consumers Warehouse, Long Island, NY, and Express Furniture, Akron, OH.

What are the newer markets for RTA furniture? What factors have helped create demand for these new products?

Commercial office, home storage and bedroom furniture all present opportunities for incremental growth. Honestly, every room within the home offers prospects for growth, including rooms such as garages that have not historically been the focus of furniture makers. Garages are ripe for dedicated workshop and storage cabinets.

Youth bedrooms offer the opportunity to create furniture that focuses on the storage needs of Generation Y.

Entertainment furniture will be revolutionized by the new landscape design of digital, LCD and plasma screen televisions.

Growth in the home office market has slowed as it has reached maturity. Therefore, commercial office opportunities give us something to work on that is dramatically different from home office and is relatively untapped.

Commercial offices must contemplate being potentially located in a space efficient environment where multiple users will share large open spaces or enclosed rooms. Additionally, commercial office products must meet durability requirements as set forth by BIFMA, which are far more stringent than those applied to home office products.

What machinery and/or supply developments have had the most significant impact on helping RTA manufacturers create new products and/or markets?

The equipment challenge of today is to provide us opportunities in new categories of furniture while increasing automation levels to drive out labor costs. Our recent machinery investments have been focused on driving down labor costs to remain competitive with imports and providing us some new looks to challenge even larger portions of the traditional furniture market.

For example, our manufacturing efficiencies have allowed us to create a new value paradigm in the commercial office furniture market. Currently, the leading providers of commercial office furniture utilize smaller batch methods as part of the build-to-order systems. The high-speed, volume-based manufacturing technology we utilize will deliver lower finished goods costs than the build-to-order systems in order to meet consumer demands for commercial office furniture.

What changes do you see for the RTA industry in the next three to five years?

The challenge for the years to come will be adapting our industry’s business model to the new environment, and providing our customers and their consumers with increasing value. By doing this, we can get the domestic RTA furniture industry back on a growth track.

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