Mike Dugan, author of The Furniture Wars: How America Lost a Fifty Billion Dollar Industry, speaks about the exodus of wood furniture production to Asia and some current strategies for competing with foreign producers. In the second half of his interview he talks about the realities of furniture production, marketing, and retailing. Click here to read Part 1.

Q: Historically the furniture manufacturing industry has always been highly fragmented, intensely competitive, and dependent on people-to-people relationships. Only Ikea has managed to build a global home furnishings empire. Can anyone scale up a traditional home furniture company to Fortune 500?  

Dugan: Not in my lifetime, and probably not in my grandson’s either, will we see a Fortune 500 size home furniture company. The poet Robert Frost said “There is something in nature that does not like a wall.” He could have added there is something in the furniture business that does not like big size. The diversity of consumer tastes prohibits long production runs which, in turn, limit economies of scale; the relationship aspect of furniture is lost in the big companies; and big furniture companies are impossible to manage. The battlefield is littered with the remains of furniture armies that sought to dominate the industry. We should accept the fact that we are a cottage industry, rejoice in it, and strive to create the best cottages any one has ever seen.

Q: Furniture producers must depend on healthy retailers yet furniture retailing has proven difficult to scale up profitably to a super-regional or national enterprise. Witness the bankruptcies of retailers like Heilig Myers and Levitz. Only Ethan Allen has found relative success in developing a known brand, streamlining the product development process, and building a large network of stores staffed by professional sales associates. Why can’t anyone replicate their success? 

Dugan: Forty years ago I was reluctant to join the furniture industry because it seemed to me Ethan Allen was the only company that understood marketing. Today that perception may still be the case. For the life of me I cannot explain why no one has followed (past Ethan Allen president) Nat Ancell’s lead. I suspect it is because such a strategy requires patience and strong leadership, two attributes our industry are rarely accused of having.

Q: You focus in your book on the furniture industry’s failure to use product development techniques and tools employed for other consumer products. Can concepts like in-depth market research and product testing involving end consumers work in furniture? 

Dugan: The furniture product development process is badly in need of improvement and the methods are available to transform it. Market research and product testing could make a big difference in the success ratio of new introductions, but not if they kill the dynamic gut-feel of the creative talent. Once again, it is hard to explain why we have not already done this.

Q: Commandment no. 2 in your book says, “Thou shalt honor strategic discipline.” You’re calling for senior managers to develop a vision and avoid being distracted by the fleeting product and market opportunities that seem to populate the furniture universe. Yet most companies suffer from their focus on the so-called Six-Month Year (the time between High Point Furniture markets). How many fully developed, formal strategies have you found among furniture companies over your years in the industry? What benefits would you expect furniture companies to derive from a proper strategic planning process?  

Dugan: Formalized strategy is overrated as a management tool, but strategic thinking is not. The process of developing a strategy is more important than the strategy itself. Very few companies even take the time to seek and define the right niche for them. When they do, then they can achieve what has been termed strategic alignment, with which all elements are in synch with each other, and strategic convergence, with which multiple weapons are brought to bear on the market. In furniture you must have hot products, a great sales force, and a solid marketing plan to be successful. That’s real convergence.

Q: You clearly believe that the home furniture sector must remain an industry consisting of relatively small companies. What is the basis for that conclusion? 

Dugan: Fragmentation occurs when no single company controls sufficient market share to influence industry outcomes. Large size and profitability are difficult to achieve. Strategy guru Michael Porter advises that unless the causes underlying fragmentation are overcome, consolidation cannot take place. The causes in the case of the home furniture industry include:

  • Economies of scale are rarely realized in furniture production because large production orders actually disrupt product flow and subsequently fast fulfillment of diverse orders.
  • Since retailers typically seek exclusive products not available to competitors, manufacturers cannot generate large volumes in single products or groups. Therefore size works against large producers.
  • Success requires creativity, and large companies can rarely maintain the necessary creative environment.
  • Consumer tastes are fragmented. Manufacturers seeking to serve a wide range of consumers are forced to develop and carry broad product lines but cannot achieve adequate demand for individual products. The goal of having 20 percent of a company’s products generate 80 percent of sales is rarely reached.
  • Product differentiation is a must but hard to attain across a broad product line.

Porter advises that the presence of only one of these factors will block consolidation in an industry. In the furniture industry most of these barriers exist. With the odds stacked against consolidation, managers should accept that fact and adopt other strategies.

One excellent strategy in this situation is to stay small, focused, creative, and entrepreneurial. That concept seems to work well in furniture.

Q: In your opinion what is the most important lesson to be learned from "The Furniture Wars"? 

Dugan: The history of the U.S. furniture industry is loaded with lessons. To me, the message that amazes me most is how we have ignored our history and repeated our most egregious mistakes.  We squandered a lot of golden opportunities. As a result we’ve lost the opening battles of the global furniture war. 

Bottom Line: Mike Dugan believes that a future does exist for U.S. wood home furniture manufacturing. But those striving for that dream must heed philosopher George Santayana’s famous quote: “Those who cannot remember the past are condemned to repeat it.”

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