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US Perspective: The State Of The Industry by Joseph Carroll

Editorial Advisor Joseph Carroll pens his views and overview of making and selling furniture in the US.

Obviouslysly we are in the worst economy since the Great Depression. Consumer confidence is at an all time low, housing sales down and unemployment currently at 8.5 percent heading for 10 percent or slightly higher. Retail sales of furniture and bedding declined from US$85 billion in 2007 to US$77.1 billion in 2008. 2009 is projected to drop to US$76.9 percent - therefore an essentially flat year. This has created an oft-heard saying in the furniture industry: “flat is the new up”.

However, let’s look at this situation as the ‘glass is half full’ rather than half empty.

Consumer confidence increased from 26.9 in March 2008 to 39.2 in March 2009, which indicates that US consumers expect economic conditions to improve in the near term. This is still far short of the 100+ indexes we were accustomed to in years prior to the recession but nonetheless is a positive indicator.

Even though furniture sales declined US$8 billion last year, as one financial analyst said to me, “we are still selling a hell of a lot of furniture. Someone is selling it and someone is buying it”. This is a valid observation and indicates to many of us that this is the “shake out” predicted since the 80’s: fewer manufacturers will be selling to fewer retailers. This doesn’t necessarily mean that the traditional retail store is going to get more business. Our channels of distribution for furniture have greatly expanded over the years. Whereas I could count 18 distinct channels in 1990, there are now at least 82 different channels of distribution. Some examples are: grocery stores, college bookstores, museum stores, and homebuilders. The industry is becoming more and more fragmented. Even manufacturers are now called “resources” as most don’t have a factory anymore. They are essentially importers or traders. Anyone with an eye for product and the financial assets can become a “resource”.

When the dust settles on this recession and we see who is left standing I believe the survivors will be those who have (1) the best management team and (2) capital, or access to capital.

Again, on the positive side, retail sales of furniture have picked up the first quarter of 2009. A number of retailers have reported sales increases of two to seven percent over a comparable period last year (noting that sales had already begun to slip last year). The High Point Market, held April 25-May 1, was rated “better than expected.” Of course, reading between the lines you have guessed that manufacturers did not come to the Market with high expectations. What is tangible, though, is that we saw a number of new collections introduced this Market, as opposed to fill-in items. Manufacturers said that they believe their timing was right because retailers have allowed their inventories to reach record lows and are ready to place new product on their floors. As housing sales are gradually picking up, due to the number of bargain foreclosed houses on the market and extremely low interest rates (currently a 30-year fixed mortgage is 4.87 percent as opposed to 5.88 percent this time a year ago) retailers are hoping the old cliché “pent up demand” is going to arrive in the fourth quarter.

The High Point Market

Market attendance was lower because there are simply fewer retail stores in business than a year ago. Many of the existing stores reduced the number of buyers they sent to market in order to cut expenses. The important point is that those buyers who came to Market, came to buy. Store inventories are low and buyers were looking for unique items at value pricing that they can sell immediately. They anticipate that the sale of foreclosed homes, as well as existing homes, that are on the market at all-time low prices, will create a demand for furniture this summer and fall.

I was told that nearly 10,000 interior designers registered to attend the Market. This is an all-time high. The high end is faring better - particularly for those remaining domestic manufacturers who can offer “mass customisation” and 30-day delivery for their case goods and upholstery.

Ironically, the low end is also picking up, with factories in Mississippi reopening to produce promotionally priced sofas, chairs and recliners now that rising labour and transportation costs from China have made them competitive again. It is mid-priced furniture that is being squeezed by increased competition from so many players in the business.

The best selling categories at Market were: home office, entertainment centres and youth furniture. We believe upholstered furniture; youth furniture; and mattresses will make a comeback this year.

All in all, it’s going to be interesting to see who emerges from this era. It is a given that they will be stronger and better managed than any time in our industry’s history.

ABOUT THE AUTHOR

Joseph Carroll (jcarroll@reedbusiness.com) is publisher of Furniture/Today, the weekly business newspaper of the American furniture industry. The veteran is a director and past president of the American Furniture Hall of Fame; a member of the Home Furnishings Advisory Board at High Point University; a recipient of the Spirit of Life Award from the National Home Furnishings Industry Chapter of the City of Hope; and was named a Pillar of the Industry by the International Home Furnishings Representatives Association.