U.S. residential furniture manufacturers look to battle the continued influx of lower-priced product from China and elsewhere overseas by focusing on customization, quality and automation.
|Residential furniture manufacturers have to contend with low-priced imports, mega-retailers like IKEA, and non-traditional stores, such as Wal*Mart, Pottery Barn and Costco.
Photo courtesy of Harden Furniture
The residential furniture industry is in a continuing state of change. Studies indicate that sales and demand are on the rise, however more and more of the furniture sold in the United States is coming from China and elsewhere.
Andy Counts, CEO of the American Home Furnishings Alliance, says retail-level consumer purchases of residential furniture were up 6.2 percent in 2006 compared to 2005.
This concurs with findings by business research firm The Freedonia Group Inc. which predicts âHousehold furniture shipments in the U.S. are expected to rise 0.7 percent per year from 2005 to $22.7 billion in 2010, supported by increases in construction expenditures dedicated to residential remodeling, trade-up activity and export opportunities, among other things.â
The study Household Furniture Consumption in the United States of America with Forecast to 2015, by the The Aktrin Group of Information Centers, also says that over the next decade, âWe expect real disposable income per household will increase by about 42.6 percent (or slightly more than 3.5 percent per year). Assuming a stable ratio of furniture spending to disposable income, we therefore anticipate that real household furniture spending â in constant 2005 dollars â will grow also by 55.1 percent over the same period from $78.5 billion in 2005 to $121.73 billion in 2015.â
Despite the positive outlook, many U.S. residential furniture manufacturers
are already reporting decreased sales in 2007 as compared to 2006. Reasons include a soft retail market, low-price imports from China and elsewhere, and stiff competition to capture and maintain a niche within the market.
To succeed in this constantly changing business environment, experts say residential furniture manufacturers need to change their tactics.
Rolling with the Changes
It is no surprise to manufacturers throughout the woodworking industry that production has been moving to China and elsewhere for many years. The residential furniture industry is no exception, and this move has made a significant impact on the way manufacturers do business.
Some companies fight the imports, advertising American-made products. Others import products and components to decrease production costs, while still others completely close down their domestic manufacturing facilities and sell only products made overseas.
Michael Lambright, director of marketing at Sauder Woodworking Co., says globalization âhas already caused our business to change in the most critical ways in terms of pushing us into becoming an importer as well as manufacturer.
âDown the road, this same trend will continue with the mix changing as circumstances change,â he adds.
Securing and maintaining a hold on the market plays a major role in remaining successful. With more options of where and how to purchase furniture available to consumers, maintaining market share becomes critical.
âRegardless of where they manufacture their products, successful U.S. furniture companies must identify the specific product niche in which they can effectively compete,â says Counts. âThey understand that the American consumer demands quality and value at every price point, and they focus on delivering those within their specific niche.â
Additionally, residential furniture manufacturers agree that there are certain factors with which production facilities in China and elsewhere cannot compete.
âThe American advantage certainly is quality,â says Doug Cleveland, national sales manager for Harden Furniture. âSecond, it is the ability to customize. In a factory like ours, weâre able to do a lot of different special work â many different finishes and things like that â so the ability to be custom is also a big advantage for us.â
|Many U.S. residential furniture manufacturers are already reporting decreased sales in 2007 as compared to 2006 because of a soft retail market, low-price imports from China and elsewhere, and stiff competition to capture and maintain a niche within the market.
Photo courtesy of Stanley Furniture
Counts agrees, adding, âDomestic producers today also must focus on the two things you cannot achieve when sourcing product overseas: rapid delivery and customization. We see a tremendous amount of innovation in U.S. factories targeting these two specific areas.
âOne of our member companies streamlined its upholstery production and achieved a 42 percent reduction in the distance traveled by each piece of upholstered furniture,â Counts says. âThat translated into the elimination of 1,300 miles per year.â
As more furniture showrooms across the country close every year, furniture manufacturers also seek new ways to bring their products to the attention of consumers.
âThe best way to reach todayâs customers is with the Internet and direct mail,â says Leo Levinson, CEO of Prescott/Levinson Advertising, a marketing, advertising and branding firm specializing in the furniture industry.
âLocation, convenience and retail branding through some mix of identity, entertainment and lifestyleâ is another good way to reach customers, says Lambright.
âWeâre selling to more interior designers all the time. We see the interior design channel as a great opportunity for growth,â adds Cleveland. âTheyâre project selling more than theyâre relying on walk-in retail traffic.â
Not all companies, however, have been able to successfully compete in this changing marketplace, which leaves more of the market up for grabs.
On January 18, Hooker Furniture announced that it would close its last remaining wood furniture plant in the United States by the end of March. âThe move results from a continuing trend of decreased order and sales rates for the companyâs domestically produced wood furniture and increased demand and sales for its imported wood and metal furniture,â said the companyâs release.
This announcement is just one of the latest in a series of closures to affect the residential furniture industry.
âMany furniture retailers have begun to source directly from overseas suppliers, eliminating the need for an American-based manufacturer or intermediary,â says Counts.
âMost furniture sold in the U.S. is now imported,â agrees Levinson. âAs of just a few years ago, most U.S. furniture manufacturing capacity has shut down. Imports have changed the industry in the areas of planning, timing, pricing and more.â
According to The Freedonia Group, âAs household furniture import levels continue to rise, demand for these products will advance at a stronger pace than production, growing 2.4 percent annually over the 2005 to 2010 period to $40.3 billion.â
In payroll costs alone, it is hard for U.S. manufacturers to compete with manufacturing done in China and elsewhere.
âThe average American worker earns 28 times what his or her counterpart in China earns,â adds Counts.
|Hooker Furniture recently announced it will close its last remaining wood furniture plant in the United States.|
âFactor in escalating health care costs and costly regulations, and itâs easy to see how dramatic the cost savings can be.â
Wood & Wood Products Associate Publisher Rich Christianson said in his April editorial, âChinaâs emergence as a world furniture superpower has come at the expense of U.S. residential furniture manufacturing.
âOther than the hundreds of thousands of laid-off workers and affected industry suppliers, itâs hard to find many Americans who seem to worry about the erosion of U.S. manufacturing,â Christianson continued. âWhile investors put an emphasis on maximizing profits, consumers show they care more about how much they paid than where their products were made.â
Globalization is a major factor in the production, distribution and sale of residential furniture worldwide. Last year, the U.S. imported $18 billion worth of furniture, with $9.196 billion coming from China, $2.580 billion from Canada and $1.046 billion from Vietnam. (See Top 100 U.S. Furniture Import Sources chart, p. 43.) These imports are creating a definite impact on sales of U.S.-manufactured residential furniture.
Sales on the Slide
Residential furniture manufacturers agree that many of todayâs consumers use price as the main factor when purchasing furnishings for their home. This, in turn, causes many people to seek out furniture from mega-retailers like IKEA and big-box stores or wholesale clubs like Wal*Mart or Costco, rather than purchasing from select showrooms.
Counts says domestic factory shipments of wood furniture and upholstered furniture were up 2.6 percent and 4.8 percent, respectively, in 2006 compared to 2005. In the first quarter of 2007, however, domestic factory shipments of wood furniture and upholstered furniture were down 7.4 percent and 2.6 percent, respectively.
âThe issues making the biggest waves for the furniture industry without question are globalization and the changing dynamics of the retail landscape with new non-traditional furniture retailers ranging from vertical retailers to big-box retailers getting into the mix of selling furniture,â says Kim Shaver, vice president, marketing communications at Hooker Furniture.
Lambright adds some of the forces responsible for the slump in residential furniture sales are âdeclining housing, rising energy prices and a declining percentage of income going to furniture purchases versus other categories.â
These factors appear to be taking their toll on the industry, as many manufacturers indicate in their financial statements.
A release from Ethan Allen Interiors Inc. said, âNet delivered sales for the quarter ended March 31, 2007, amounted to $246.5 million as compared to $267.1 million in the prior year quarter. Net delivered sales for the companyâs retail division decreased 0.3 percent to $167.7 million, while wholesale decreased 10.6 percent to $171.9 million during that same period.â
Stanley Furniture Co. Inc. reports similar figures, with net sales for the first quarter of 2007 down 10.1 percent from the first quarter of 2006.
In the release, Stanley President and CEO Jeffrey R. Scheffer said, âWhile we are disappointed with lower sales and earnings, we believe this is consistent with current industry-wide conditions.â
âSales for the first quarter of 2007 were $73.4 million, down 15 percent from the $86.5 million reported in the first quarter of 2006,â said Bassett Furniture Industries Inc. âThis shortfall is primarily due to continued soft furniture retail conditions, which have impacted both retail sales and wholesale shipments.â
|Sauder Purchases Assets of Rival Company
ARCHBOLD, OH â Sauder Woodworking Co., a ready-to-assemble furniture manufacturer, announced in April that it purchased the assets of OâSullivan Industries Inc. for an undisclosed amount. However, Sauder did not buy the OâSullivan company or its buildings and machinery.
âWe did not buy the company outright; but after studying OâSullivanâs business, we acquired selected portions we felt added value to Sauderâs operations and customer relationships,â says Kevin Sauder, president and CEO of Sauder. âClearly, adding major portions of the customer base and product placements of this $200 million company will significantly expand our sales, increase production at our Archbold facility and grow our market share.â
The purchase gives Sauder the right to manufacture OâSullivan products, including its Coleman garage furniture. Approximately 200 new jobs will be created in Archbold as a result of the purchase.
Furniture Brands Intâl., which markets such brands as Broyhill, Drexel Heritage, Henredon, Lane, Maitland-Smith and Thomasville, said, âNet sales for the first quarter of 2007 were $573.7 million, compared with $661.4 million in the first quarter of 2006, a decrease of 13 percent. Net earnings for the first quarter were $2.9 million, down from $30.2 million in the first quarter of last year.â
La-Z-Boy Inc. also reported net sales for the third fiscal quarter of 2007, which ended January 27, were $403.9 million, down 9.6 percent when compared to the prior-year period.
Still, not all companies are seeing a decrease in sales figures this year, compared to last year.
Doug Cleveland, national sales manager for Harden Furniture Inc., says the companyâs 2007 sales are âabout dead even with last year.
âWeâre still seeing a lot of dealer attrition in terms of people closing, sadly,â he adds. âWeâre still feeling the price value impact of all that cheap Asian stuff, even though weâre very much a high-end manufacturer.â
Strategies for the future differ from one company to another, with a common theme of controlling cost.
âNear term, we will continue to focus on controlling costs and inventories, and improving our product offerings,â says Scheffer. âLonger term, we remain focused on reducing costs, eliminating waste, and improving productivity, quality and service through our continuous improvement efforts applying lean business principles."
VIPs weigh in on globalization
Have something to say? Share your thoughts with us in the comments below.