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 “Household 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.”

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, “We 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 — in constant 2005 dollars — will grow also by 55.1 percent over the same period from $78.5 billion in 2005 to $121.73 billion in 2015.”

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 “has already caused our business to change in the most critical ways in terms of pushing us into becoming an importer as well as manufacturer.

“Down the road, this same trend will continue with the mix changing as circumstances change,” 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.

“Regardless of where they manufacture their products, successful U.S. furniture companies must identify the specific product niche in which they can effectively compete,” says Counts. “They understand that the American consumer demands quality and value at every price point, and they focus on delivering those within their specific niche.”

Additionally, residential furniture manufacturers agree that there are certain factors with which production facilities in China and elsewhere cannot compete.

“The American advantage certainly is quality,” says Doug Cleveland, national sales manager for Harden Furniture. “Second, it is the ability to customize. In a factory like ours, we’re able to do a lot of different special work — many different finishes and things like that — so the ability to be custom is also a big advantage for us.”

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, “Domestic 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.

“One of our member companies streamlined its upholstery production and achieved a 42 percent reduction in the distance traveled by each piece of upholstered furniture,” Counts says. “That translated into the elimination of 1,300 miles per year.”

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.

“The best way to reach today’s customers is with the Internet and direct mail,” says Leo Levinson, CEO of Prescott/Levinson Advertising, a marketing, advertising and branding firm specializing in the furniture industry.

“Location, convenience and retail branding through some mix of identity, entertainment and lifestyle” is another good way to reach customers, says Lambright.

“We’re selling to more interior designers all the time. We see the interior design channel as a great opportunity for growth,” adds Cleveland. “They’re project selling more than they’re relying on walk-in retail traffic.”

Not all companies, however, have been able to successfully compete in this changing marketplace, which leaves more of the market up for grabs.

Import Issues

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. “The move results from a continuing trend of decreased order and sales rates for the company’s domestically produced wood furniture and increased demand and sales for its imported wood and metal furniture,” said the company’s release.

This announcement is just one of the latest in a series of closures to affect the residential furniture industry.

“Many furniture retailers have begun to source directly from overseas suppliers, eliminating the need for an American-based manufacturer or intermediary,” says Counts.

“Most furniture sold in the U.S. is now imported,” agrees Levinson. “As 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.”

According to The Freedonia Group, “As 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.”

In payroll costs alone, it is hard for U.S. manufacturers to compete with manufacturing done in China and elsewhere.

“The average American worker earns 28 times what his or her counterpart in China earns,” adds Counts.

Hooker Furniture recently announced it will close its last remaining wood furniture plant in the United States.

“Factor in escalating health care costs and costly regulations, and it’s easy to see how dramatic the cost savings can be.”

Wood & Wood Products Associate Publisher Rich Christianson said in his April editorial, “China’s emergence as a world furniture superpower has come at the expense of U.S. residential furniture manufacturing.

“Other than the hundreds of thousands of laid-off workers and affected industry suppliers, it’s hard to find many Americans who seem to worry about the erosion of U.S. manufacturing,” Christianson continued. “While investors put an emphasis on maximizing profits, consumers show they care more about how much they paid than where their products were made.”

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 today’s 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.

“The 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,” 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 “declining housing, rising energy prices and a declining percentage of income going to furniture purchases versus other categories.”

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, ”Net 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 company’s retail division decreased 0.3 percent to $167.7 million, while wholesale decreased 10.6 percent to $171.9 million during that same period.”

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, “While we are disappointed with lower sales and earnings, we believe this is consistent with current industry-wide conditions.”

“Sales 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,” said Bassett Furniture Industries Inc. “This shortfall is primarily due to continued soft furniture retail conditions, which have impacted both retail sales and wholesale shipments.”

Sauder Purchases Assets of Rival Company

ARCHBOLD, OH — Sauder Woodworking Co., a ready-to-assemble furniture manufacturer, announced in April that it purchased the assets of O’Sullivan Industries Inc. for an undisclosed amount. However, Sauder did not buy the O’Sullivan company or its buildings and machinery.

“We did not buy the company outright; but after studying O’Sullivan’s business, we acquired selected portions we felt added value to Sauder’s operations and customer relationships,” says Kevin Sauder, president and CEO of Sauder. “Clearly, 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.”

The purchase gives Sauder the right to manufacture O’Sullivan products, including its Coleman garage furniture. Approximately 200 new jobs will be created in Archbold as a result of the purchase.

Furniture Brands Int’l., which markets such brands as Broyhill, Drexel Heritage, Henredon, Lane, Maitland-Smith and Thomasville, said, “Net 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.”

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 company’s 2007 sales are “about dead even with last year.

“We’re still seeing a lot of dealer attrition in terms of people closing, sadly,” he adds. “We’re still feeling the price value impact of all that cheap Asian stuff, even though we’re very much a high-end manufacturer.”

Strategies for the future differ from one company to another, with a common theme of controlling cost.

“Near term, we will continue to focus on controlling costs and inventories, and improving our product offerings,” says Scheffer. “Longer 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

Wood & Wood Products surveyed Woodworking VIPs, an online community of readers that acts as advisors to the magazine, to gauge their thoughts on the

current state of the residential furniture industry and how it is affecting their companies. Those members surveyed represent a wide variety of sectors of the woodworking industry, not only residential furniture manufacturers.

To find out more about becoming a Woodworking VIP, visit www.woodworkingVIP.com.

Of the 209 industry professionals surveyed, 46 percent say that they have been monitoring the movement of residential furniture manufacturing overseas. When asked if it has affected their company’s business, replies were mixed, with high-end, custom manufacturers feeling less of an effect.

“I have seen no direct effect,” says a president of a Georgia cabinet company. “But I believe the secondary effect is the lowering of market value across the board.”

“It has affected our business considerably,” says a California commercial cabinetmaker. “At least 30 customers we used to sell to no longer buy our materials because they have moved their production to China.”

“The movement of residential furniture made in China has reduced moulding sales to domestic manufacturers by about 80 percent,” a Michigan millworker says.

Some answers were positive as well. “It has helped the custom end of business and bolstered the repair and component manufacturing of short ‘emergency’ runs,” says a North Carolina commercial cabinetmaker.

Sixty-five percent of those surveyed agree that the trend is proof positive of a global economy. “It [the movement of residential furniture manufacturing overseas] will force us to look at more options in material selections and labor and overhead cost,” says the head of an Oregon cabinet company. “We will have to spend more time than we already do trying to educate the consumer on all the differences in the competing products.”

“It is beneficial only for the owners of large companies,” says a residential furniture manufacturer in Washington. “It drives wages down across the board in industrialized countries.”

Sixty-two percent think that the federal government should act to curb imports of furniture and other wood products, with differing ideas on how to do it. “By enforcing the same U.S. regulations on all import furniture,” says the president of a California residential furniture manufacturer. “Even more so for those U.S. manufacturers who set up shop out of country to avoid U.S. manufacturing regulations, employee rights and environmental laws.”

“By aggressively reviewing pricing and dumping, monitoring trade balances and seeking to negotiate favorable terms to shift this,” says the head of a Florida company.

Thirty-eight percent opposed government intervention. “Too many businesses sell imported goods and would be negatively affected by import controls,” says a Georgia millworker. “What the federal government should do is not favor foreign manufacturers’ countries with favorable raw materials sales that allow them to buy logs and lumber cheaper than domestic manufacturers.”

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