From Home Furnishing Business
By Bob George
This is not something many of us want to do. However, this is an inevitable condition in today’s fast-paced environment. And the Internet is a big part of that environment. We cannot slow its growth or lessen its influence even if we want to. It is hard to contemplate the fact that today 17.5 percent of all furniture is sold via the Internet. What happened to the age-old maxims of “They need to sit on it or see the quality or appreciate the finish”?
Before you dismiss these statistics as not believable, understand the fact that only one-third of this 17.5 percent is sold by direct e-tailers—the balance is sold by brick-and-mortar retailers who recognize that consumers want to shop online. There was a time when no one would have envisioned the owner of a fast food restaurant would cut a hole in the wall of the restaurant and sell food through it. However, today one expects this type of restaurant to have a drive-thru window.
This is not to compare furniture to fast food. Instead, it is to help us emphasize the fact that the retailer must conform to how the consumer wants to shop. In the research focusing on this subject (see “Hot Wire” on page 16), the Ease of Shopping was as important to the consumer as Price.
We also cannot ignore the consumer’s perception of Selection when shopping on the Internet (sharing first place with Price as the most important reason for consumers to shop the Internet). To understand this perception, observe the in-store interaction between the sales associate and the consumer. Notice your sales person as he or she goes through a “needs analysis” with a customer. Then, compare that with the efficiency of the Sort capabilities on the Internet. You can begin to understand why more than 50 percent of customers leave the store believing “I couldn’t find what I wanted.”
The Internet is here to stay. Its scope spans such a wide-ranging territory that it boggles the mind. Therefore, it is important for the furniture retailer to recognize the inevitability of change, be willing to make the leap, and embrace the ‘Net.
The successful retailer must anticipate change, not wait until competitors have seized the advantage. This is true of major strategic shifts, such as the Internet. However, it is equally true of certain ongoing changes as well. Among the more important areas on which to focus are the strengthening or weakening of certain product categories, the effectiveness of advertising and the measurement of that effectiveness, and a careful consideration of price point migration. To anticipate change requires a measurement. Without a sundial, a watch, or a digital phone, you would not know what time it is. As pointed out in this issue’s section on motion upholstery, there has been significant growth in the category. However, there are still retailers with limited assortments of motion who wonder why their upholstery sales are down.
From outside the industry there is a fear that furniture retailing is destined to move in the direction of apparel and footwear retailing with the concentration of the volume being in mass merchants or very focused specialty stores. The results are declining dollar volume with stable unit volume. We don’t believe this is true. However, retailers that meet this challenge need to embrace change and adopt the current business model to meet consumers’ demands. Or they will have to create a new retail model that satisfies a need they have yet to recognize.
By Sheila Long O’Mara
Take a tour down nostalgia lane with me for just a few minutes. For those of you over the age of 40, think back to shopping when you were a young teen. Not just for home furnishings, mind you, shopping for nearly anything—clothes, cars, sunglasses, books, toys, wine—and everything.
For me, the lone girl in a family of three kids, shopping for the back-to-school wardrobe was the best. First of all, neither of the boys gave a hoot about clothes—t-shirts, jeans and sneaks got them through. I, on the otherhand, did care, and it just so happened that my mom did, too. Secondly, a day spent shopping was a day spent building a mom-daughter bond.
Back in the day, in small town <st1:place w:st="on">North Carolina, store options were limited. We had the home grown department store of Belk, where you could spend nearly a day in the juniors’ department. There was an Ivey’s. Remember that name? The Charlotte-based department store was acquired by Little Rock-based Dillard’s in the 1990s.
For jeans and corduroy Levi’s in all the colors of the rainbow, the Gap was the place to go. I, a lanky teen with a small frame and long legs, appreciated the abundance of waist-length combinations available in those cubbies stacked floor to ceiling with denim and cords. Shopping was an all-day adventure that always included at least one meal, and sometimes three, out. It was THE scavenger hunt of all scavenger hunts.
At the end of the day, the prizes were all folded and tucked neatly in the bags, carried home by an exhausted yet happy girl. Fast forward to back-to-school—or any other—shopping today. The experience has changed exponentially. I still find myself living with boys who don’t care to shop, but the choices in store fronts has exploded over the years. The department stores don’t carry quite the same draw, whereas specialty stores have developed quite the cult-like following.
Add the World Wide Web—the Internet—to the number of brick and mortar stores and the total of places to shop has become nearly infinite. E-commerce is booming, and the Internet has become a shopper’s first stop prior to buying most things, including furniture. Oh, she may not buy, but she’s certainly looking, and IF she finds the perfect match to what she’s hunting, then look out. She’s just as likely to put that bed or chest or dining table in her virtual shopping cart, pull out her credit card and own both the product and the shopping experience.
E-commerce no longer only revolves around books, shoes and hard-to-find wines. Like it or not, the phenomenon is here to stay. Laptops, desktops, tablets, smartphones—consumers are using all devices to shop with AND buy from.
Is the thought scary? Of course it is, if you’ve not figured out how to add that shopping cart feature to your Web site and the back end logistics needed to make it work. Is e-commerce the end all be all for retailing—furniture or otherwise? No, but it is a very real, very tangible part of the business.
In this issue, we explore e-commerce and share insight from retailers who are making it work and experts who understand the subject and how to help home furnishings retailers create a dynamic, online experience.
Here’s to figuring out the future of retailing on the Internet while we old folks reminisce about the good ol’ days of running from store to store in search of the perfect fall wardrobe.
A merchandise scheme that appeals across price points and big selection are keys to the self-image Gorman’s Furniture Projects.
By Powell Slaughter
A commitment to offering a huge range of styles at upper-middle to high-end price points coupled with a “flat” management approach that inspires all employees to make offering solutions to customers their top focus have Gorman’s Furniture thriving in a highly competitive region for furniture retailing.
Based in Novi, Mich., Gorman’s serves the suburban Detroit area and, since March 2011, Grand Rapids. It’s an area chock-full of familiar, powerful retail brands. Those include Art Van (which has revived the high-end Scott Shuptrine name), Gardner White, Hillside Furniture and the 800-pound gorilla, Ikea. Not only that, research from Home Furnishings Business’ parent company Furniturecore/Impact Consulting shows the markets Gorman’s serves—Warren-Troy-Farmington Hills, and Grand Rapids—vary in terms of age and income, which might create problems for some furniture retailing models.
FROM “GOOD” TO “EXCEPTIONAL”
“The way we’ve competed is to have a clear understanding of who we are and project that to the marketplace,” said Tom Lias, president and CEO. And what Gorman’s projects is a huge selection at a range of prices. “As you enter one of our stores, you’ll see about half the store is set up into lifestyles, and the other half is divided into (category specific) shops,” he said. “Around half our customers coming in are product-specific. They’re looking to solve a problem, generally with a particular product category. Those customers are easy to talk to.” For the other half that says, ‘We’re just looking, we want to browse,’ Gorman’s sales staff, which consists mostly of interior designers, can steer those customers to defined lifestyles that are shown in vignettes. Gorman’s vignettes blend vendors, and they blend price points.
“Our merchandising platform is good, better, best and exceptional,” Lias said. “We treat merchandising in a horizontal fashion, like a flat management style. In flat management, everyone is equal, and everyone is important, they just have different job descriptions. That’s the way we run the business. The partners are out on the floors.
“The total (presentation) is what services the customer. Our ‘good’ presentation is branded under the ‘Intro’ brand—we’ve had that copyrighted for 17 years. You’ll have a $799, $899, $999 sofa. All the product categories are represented in Intro. It helps our competitive position, and makes us approachable. We know people have different needs for different times in their life, and for different parts of their house.” The contemporary furniture store in Southfield, Mich., is an exception to the look of Gorman’s merchandising scheme at the other stores, but the good, better, best and exceptional platform remains the same.
“We can have a $799 sofa and a $7,999 sofa from Baker in the same store,” Lias noted. “They’re there for a different customer, or for the same customer for a different part of the house. They might want that Baker piece for the living room, but something less expensive for where the kids hang out.”
If Gorman’s internal merchandising is good, better, best and exceptional, its external merchandising is led by ‘100 Brands.’
“About six or seven years ago, because we want to be a destination for the best selection, we created the platform of ‘100 Brands,’” said Lias, who joined Gorman’s as a partner in 1984 after long experience in dedicated, single-brand stores that included Ethan Allen, La-Z-Boy and Drexel Heritage. “We believe we have the broadest range in Michigan, maybe the Midwest in prices and styles, because most traditional stores don’t do contemporary. We have the 100 best brands in furniture all in one place, all in one time.”
Television is Gorman’s number one vehicle for getting that message out to the marketplace, along with some radio and print in supporting roles.
“In addressing those 100 brands, we say ‘We are Michigan’s style leader,’” Lias said. “When you define yourself that way, you can have the moderate prices and the high end in the same store, because it’s all about style. That is our market position.” The style and selection range fit well with Gorman’s emphasis on design-oriented sales. Of its 60 sales staff, Gorman’s has around 50 with design degrees, background and experience. Their services are complimentary.
“Working with a designer is a by-product of coming to Gorman’s,” Lias said. “All of those 50-plus people will make house calls, create plans for customers. That could involve just answering a couple of questions about color to designing a complete floor plan for the home.”
FROM FREIGHT TO FINE FURNITURE
Gorman’s dates back to 1940, when Founder Ben Gorman began selling damaged railroad freight from an outlet in Southfield. Soon, Gorman’s started receiving damaged furniture, which it would repair for sale. As word spread, furniture retailing was a natural next step. In 1965 Ben Gorman sold the store in Southfield to Bernie Moray who continues the operations with partners Tom Lias, Jeff Roberts and John Moray. That led to opening new locations, and a new direction.
“After Bernie acquired the company, he wanted to take it more upscale,” Lias noted. Gorman’s opened a store a couple of hours from its Detroitarea base in Grand Rapids in March 2011.
“We actually returned to the same store we were in 15 years previously,” Lias said. “We had Drexel Heritage store there for 15 years. It was bought out from under us while we were negotiating the lease.
“Ultimately they did us a favor, because we moved back to Detroit, where we opened new locations and moved existing stores. We really built up our business in Detroit, so it ended up a blessing in disguise.”
Lias mentioned earlier that Gorman’s runs on a “flat” management model. The owners are on the floors, and they solicit input from all employees, which has generated powerful esprit de corps. And Gorman’s worked hard during the recession to keep those people in their jobs.
“The adjustments we made in 2008 were almost instantaneous,” Lias said. “By the end of October we had restructured the company. We took everyone to a four-day work week, and we were able to retain almost all our staff for the duration of the downturn. By moving early we didn’t have to be as drastic in our cuts, no closing of stores, laying off staff.”
It’s no surprise, therefore, that Gorman’s has been rated one of Michigan’s “Best Places to Work” for three years in a row by the Detroit Free Press.
“We have almost no turnover, and that includes administration and warehousing,” Lias said. “We keep everybody involved in the business —we communicate the goals, the standards, across the board.
“Gorman’s has one policy, and that’s ‘Must Be Right’ (see accompanying box). Everything else is a standard or procedure. And ‘Must Be Right’ isn’t a phrase for us, it’s a way of life that creates a very positive environment to work in.” It’s all part of flat management’s egalitarian approach, and it’s helped Gorman’s attract top-notch talent.
“Everyone’s treated with respect and involvement. It goes back to that flat management,” Lias said. We have no trainees; everyone here is a career furniture person. “When furniture stores were closing right and left, we went after their top one, two or three people. Almost everyone at Gorman’s was the best at their job someplace else.
You have to have a very strong image, based on the needs of our designers, because that’s what they need to solve customers’ problems. If you solve problems, you’ll deliver a whole lot of furniture.” HFB
Four co-owners include Tom Lias, president and COO; Bernie Moray, senior partner; Jeff Roberts, executive vice president; and John Moray, vice president of operations and information technology.
American Leather, Bernhardt, Century, Better Homes & Gardens, Drexel Heritage, Hendredon, Hancock & Moore, Hickory Chair, Hickory White, Hooker, Lazar, Lexington Home Brands, Natuzzi, Rowe, Serta, Sherrill, Stanley, Stickley, Stressless by Ekornes, W. Schillig.
Gorman’s Furniture has just one policy, and it’s “Must Be Right.” It reads: “Before you arrive, we assure you that Gorman’s is prepared to make presentations that meet your expectations. Whether your interests lie in classical motifs and traditional ambience, or in the latest contemporary trends, our objective is to help you visualize all the choices you have to achieve your unique design goals.
While you work with us, we assure you that the professional staff members who assist you are experienced, informed and – above all – sensitive to your needs: that you and your specific requirements come first and foremost. “After your purchase, we assure you that everything meets our standards for quality, specifications, and service. If there is a problem, Gorman’s will correct it.” “In short, we assure you that everything must be right, or we will make it right.” “That is more than our promise. It is our policy.”
"We can have a $799 sofa and a $7,999 sofa from Baker in the same store. They’re there for a different customer, or for the same customer for a different part of the house".
-- Tom Lias
Warren-Troy-Farmington Hills, Mich., MSA (includes Novi, Mich., Gorman’s Hometown)
2013 1st Quarter Retail Sales: $200.8 million
Change in Sales: -3.42% from 1st Quarter 2012
2012 Retail Sales: $837.1 million
Other Retail Players: Art Van Furniture, Hillside Furniture, Gardner-White, Restoration Hardware, Crate & Barrel, Pottery Barn, Arhaus Furniture, American Freight, Value City Furniture, Ikea.
Gorman’s Furniture at a Glance
Founded: 1940 as a retailer of damaged freight
Homebase: Novi, Mich.
Store Count: 5
Other Real Estate: 2 warehouses totaling 66,000 square feet
Annual Revenue: $30-$35 million
Web site: Gormans.com
After Losing Luster During the Recession, the U.S. Market Is a Prime Export Target Again.
A recovering U.S. economy is good news for furniture retailers in ways beyond the obvious reasons.
Not only is it good for business, it makes them a lot more attractive as customers in the global marketplace for home furnishings.
With furniture stores closing left and right during and in the wake of the recession, and consumers that worried more about keeping their homes and jobs hardly thinking of buying furniture, manufacturers in source countries looked to spread their eggs beyond the proverbial U.S. basket.
Growing markets such as China got more attention, including furniture makers there that started re-working their goods for appeal in the domestic market.
The tide is swinging back.
“Right now the United States is a growing economy, and Europe is a mess—the U.S. is getting a lot more global attention than it was 18 months ago,” said industry analyst Jerry Epperson, managing director of Mann Armistead & Epperson in Richmond, Va. “China’s economy grew again last year, but growth slowed faster than what they had planned, so it’s my understudying there are some export initiatives being reinstated.”
Epperson’s of the mind that the Chinese weren’t necessarily better manufacturers than U.S. companies, they received a lot of government incentives to. A couple of years ago, those come-ons were drying up for furniture makers as the Chinese government shifted its emphasis to “cleaner” industries.
“I’m hearing those incentives are coming back,” Epperson said. “Now, some of these manufacturers who said six months ago that we won’t be around, are saying this could be good business.”
It might be too late for some, though, as bedroom furniture production in particular has headed farther south to Vietnam and Indonesia. Labor rates continue to rise in China, and are creeping up in Vietnam as well, though the latter remains cost-competitive relative to its northern neighbor.
“We here some of the Chinese manufacturers aren’t making any money,” Epperson said. “There’s no question they’re still dominant, especially in upholstery. “Vietnam’s grown, but it’s not even a third of China. The capacity just doesn’t exist anywhere else. Indonesia’s still relatively small compared with China.”
With a 7 percent increase to $11.7 billion in household furniture exports to the U.S. market last year (out of total imports of $19.5 billion), per International Trade Commission numbers, China remains source country king. Second-place Vietnam grew at a much faster pace, 32.5 percent, but even at that rate it faces a lot of catching up, totaling just under $2 billion in shipments to the U.S. last year.
MOVING THE PIECES
Even if China re-instates export incentives, antidumping duties on many manufacturers will keep wood bedroom capacity that left in other countries, which are developing their chops in other wood categories as well. That, plus the fact that manufacturers have spent the past 10 years making investments elsewhere they don’t want to give up on.
“I don’t see it going back,” said Jack Hawn, president and CEO, Zenith Global Logistics, Conover, N.C. “When you’re talking about moving production, it’s very, very painful.
“What we’re seeing is most of the case goods product we get in our warehouses for our clients is coming out of Vietnam. We’re seeing a decent amount coming out of Indonesia. Most of that’s because of pricing.”
At City Furniture in Tamarac, Fla., Vietnam is on the rise.
“We have developed an important relationship with a great factory that should be a win-win for us both,” said Keith Koenig, president. “Quality and value and receptivity are all aligned for success.”
City is doing full collections at Kaiser, the Vietnam plant Koenig mentioned.
“We have an important, growing relationship with them,” he said.
Looking at the current Asian scene, Ray Johnson, senior vice president, global supply chain, Furniture Brands International, St. Louis, also cited Vietnam as the place to watch, as well as Indonesia.
“These countries are growing because local materials and labor are more easily controlled, with less turnover,” he said. “Chinese sourcing has been a little difficult because of labor costs and availability.
“Consumers are interested in mixed media pieces … ones that combine stone, metal and wood. China is still the number one producer of those types of products and simply is the best at that … but Vietnam and Indonesia are trying to catch up.”
While China still dominates, it’s starting to run out of category targets.
“It’s a question of at what point is low-hanging fruit taken,” Epperson noted. “They first started with occasional tables and dinettes that could be re-assembled over here. There was nothing with a drawer. Then they got into more case goods. Fabric upholstery didn’t really get started till 2002.
“There are certain products they can’t do that we can do over here. Those require a certain amount of customization. In every category they tried, they looked for the low-hanging fruit, those product increments where they could win on cost. At some point in time … the increments get harder to find.”
CLOSER TO HOME
Retailers got into the habit of looking to order smaller and get the product quicker during the recession, and that was good news for source countries closer by, as well as domestic producers.
“The return of a version of the ‘Rustico’ look could really help Mexico,” Koenig said. “A lot of the hand-made, one-of-a-kind, reclaimed wood tables and consoles and accent chests that are coming from India are selling well, and Mexico is starting to make some similar items that would be easier to flow.”
U.S. manufacturing is coming back, as well Koenig added.
“Just look at what Ron and Todd Wanek (at Ashley) are doing,” he said. “If our government would get off their back and out of their way, they would make even more furniture here.”
FBI’s Johnson said that Mexico’s cost structure is getting closer to China’s, which is building interest south of the border.
“Add in lead times like one week versus 45 to 60 days in China, and Mexico becomes even more appealing,” he said. “Our Mexican cut/sew operation (producing kits for Lane and Broyhill) is equal or better in costs to China and lead times are significantly less. We’ve seen that Ethan Allen and La-Z-Boy have expanded in Mexico in the last few years too.
“We believe we will see fabric mills start to grow in Latin America, too. There are lots of leather goods and tanneries in Mexico and Central and South America now. These facilities make these areas more appealing. We are even sourcing some occasional case goods out of Mexico now. You’ll see more companies get interested in Mexico in the future.”
Hawn said he’s noted customers bringing in LTL shipments from Mexico to Zenith’s distribution hubs in the past six months.
“It’s not a lot, maybe a load a month, but it wasn’t there last year,” he said. “Most of what we’re getting is in the occasional table category.”
U.S. manufacturers are increasingly competitive with their global counterparts, according to Johnson, if not from a cost, then at least from a service standpoint.
“Consumers want products as soon as they can get them—more people want things faster instead of waiting for months,” he said. “One of our brands, Hickory Chair, produces custom furniture domestically and we believe this brand is growing every year because of short lead times compared to international orders. And, we can control customization and quality much more tightly domestically.”
Hawn’s also seen an uptick in the domestic product Zenith handles.
“We’re seeing a big increase in soft goods, upholstery. It’s probably a double-digit increase into our hubs. We’re flat or down on case goods,” he said. “It’s hard to tell sometimes. We may get a domestic vendor who’s importing, too, and brings it to our hub. We don’t know for certain where it’s made unless we go out and look at the box.” HFB
Building a Bigger Ditch
Next year, the Panama Canal is set to complete work on a new channel designed to handle larger ships.
So called “Post-Panamax” ships—that is those too large to navigate the mid-Americas link between the Pacific and Atlantic oceans—will have far easier access to Gulf Coast and Atlantic ports after the new lane opens. Container ships in that category can handle up to 12,600 20-foot-equivalent units versus their smaller counterparts’ maximum of 4,400, according to a study, “Impact of the Panama Canal Expansion,” by Yossi Sheffi, director of the Massachusetts Institute of Technology’s Center for Transportation and Logistics; and PhD candidate Liliana Rivera.
City Furniture, Tamarac, Fla., receives some of its containers at the port of Miami. President Keith Koenig said the opening of the channel has the potential to “change our world.”
“Right now the (Post-)Panamax vessels are running between Asia and LA/Long Beach—certain ports in the U.S. are getting modified to accommodate their deeper draft, and that includes Miami, where we receive our international shipments,” he said. “The assumption is you can negotiate better rates if the ship’s carrying 4,000 containers versus 2,000.”
Koenig isn’t counting on anything just yet, but he is hopeful. So is Zenith Global Logistics CEO Jack Hawn, but he said the jury’s still out on whether the canal upgrade will affect cost-to-market for Asian goods.
“I’ve asked 100 people that question, people in the shipping business, and they don’t know yet,” Hawn said. They point out that with the new ships and more port charges, there will be some other costs. If you’re in Chicago, it probably won’t make too much difference.
“We have a South Florida hub, so we hope it’s cheaper, too, but right now we just don’t know.”
AN ACADEMIC TAKE
The MIT study found the fastest way for goods shipped from Shanghai to reach the U.S. East Coast is a 12- to 14-day ocean voyage, followed by seven to eight days by rail to New York—19 to 22 days.
The same cargo through the Panama Canal takes 25 to 26 days (fewer days, obviously, to Gulf Coast and South Atlantic Seaboard ports); and 27 to 28 days through the Suez Canal.
The study determined the Panama route cost $600 per container less than the West Coast/overland route.
Ports carrying on major projects will want to recoup those costs with fees, and the Panama Canal already charges per container, so retailers and their transportation partners will have to crunch their own numbers.
The MIT study also suggested that environmental issues and the potential for emission pricing “could favor the West Coast route” since carbon dioxide emissions for the West Coast-to-overland route are 2/3 of a trip through the Canal to New York.
In addition, the study noted that some West Coast ports have teamed with Burlington Northern Santa Fe and Union Pacific railroads in the U.S. West Coast Collaboration, which looks to guarantee competitive costs and service for shipping containers.
Sourcing’s Logistics Remain a Challenge, But There Is Some Good News.
Whoever said “getting there is half the fun” sure didn’t have furniture in mind. Shifting source country dynamics, lead times and rising fuel costs make getting product to your store or warehouse among furniture’s—or any retailing’s—greatest challenges.
There’s some good news on that front. Ocean freight appears fairly stable this year, according to several observers of and participants in the logistics field.
“On the issue of freight increases, I haven’t heard from my members as far as ocean freight increases,” said Jonathan Gold, vice president of supply chain and customs policy for the National Retail Federation. “I believe all of the companies completed their yearly rate negotiations a couple of months ago. We stay out of those conversations for obvious reasons. Any kind of increases such as the GRI (General Rate Increase) would have to be subject to what’s in their contract.”
Jack Hawn, president and CEO of Zenith Global Logistics, Conover, N.C., also believes retailers can anticipate no big pricing changes due to ocean freight costs.
“I don’t think we’re looking at any big rate increases,” he said. “Barring sea carriers getting together and doing something crazy, I don’t anticipate a big change in rates.
“The rates we’re getting are pretty much level. On the other hand, port charges seem to be creeping up, it seems they’re dinging you for every little thing; and while that’s outside of the rates, the customer still has to pay for it.”
While fuel surcharges can fluctuate, Ray Johnson, senior vice president, global supply chain for St. Louis-based Furniture Brands International, doesn’t see much cost impact this year for floating furniture across the Pacific. There might be some offsets in raw materials and other product costs, though.
“Labor, materials and overhead are the main costs, so people are still moving toward Vietnam and Indonesia because of these costs,” he said. “We have seen plywood up 25 percent-plus in price from last year, driven by new housing. Plywood costs are just now starting to come down. Leather is up due to excess demand, we see some slight pricing increases in fabric and some increases in packaging.”
Not so long ago, retailers could were sharing horror stories of losing slots on ships for their containers due to vessel capacity issues. Containers even were getting harder to come by.
Hawn noted that right now, there seems to be a fair amount of supply for both vessels and containers.
Gold at NRF agreed.
“I think the supply is adequate right now,” he said. “I don’t believe we’ll have the shortage issue that we had a couple of years ago where containers were rolled and bumped from sailings. Hopefully this is due in part to better communication between the carriers and their customers.”
Johnson at Furniture Brands said he sees retailers wanting to do more direct container shipping instead of warehousing product in the USA.
“When a retailer owns the shipping, it’s all their cost. But when retailers use mixed container shipping, maybe six to eight retailers might share a container and share the shipping costs,” he said. “It’s a great option for them and we have successfully executed this mixed container shipment for Broyhill for quite some time.”
Gold suggested that retailers should pay attention to regulatory and legislative efforts that could impact their supply chains.
“Retailers should always be aware of the potential issues impacting capacity and the movement of their merchandise,” he said. “Key to this is close relationships with their transportation providers in order to stay abreast of the latest issues.
“The continuing negotiation of the Transpacific Partnership Agreement is another issue retailers should continue to pay attention to as the negotiations near their conclusion before the end of the year,” Gold said.
The stated goal of that agreement is to enhance trade and investment among the partner countries, which include a burgeoning source for furniture, Vietnam, along with Australia, Brunei Darussalam, Chile, Malaysia, New Zealand, Peru, Singapore and the United States.
EYES ON THE ROAD
Ocean freight might be holding steadier, but retailers should expect higher truck freight costs this year than in the past three or four said Ray Kuntz, CEO of furniture shipper Watkins-Shepard.
“We’re in the process of analyzing cost factors. We take a price hike once a year before the fall High Point Market, so our customers can count on a rate for the purchasing year,” he said. Most of our customers make purchase decisions for the next 12 months at October Market” so it’s for a shipping versus calendar year.
A recovering economy is carrying along some increasing costs.
“One of the biggest issues we’re facing from the cost side is equipment,” Kuntz said. “Trucks that cost $90,000 (a few years ago) might be $130,000 now. Tires have gone up dramatically, well over 10 percent.”
Truck maintenance expenses are up as well, especially when breakdowns occur away from a hub—as well as other costs.
“Whenever you have to get any parts or maintenance on the road, that’s gone up dramatically since the recession,” Kuntz said. We work out agreements to service our equipment regularly, but sometimes things happen unexpectedly in the field.
“Also, a lot of states are upside-down on their transportation budgets, so we’re seeing states increase fuel taxes and tolls.”
The absolute biggest issue for truck transport, though, is the driver situation, according to Kuntz.
“There’s a real shortage of drivers,” he said. “There weren’t many trained during the recession, and we have a lot of drivers over 60 who are looking to retire. … Everyone’s trying to keep up with the driver shortage. I’d expect in the next year, depending on where you’re looking, driver pay is going to go up 5 to 10 percent.”
Another freight-related issue for retailers to consider is the impact of changes to the Federal Motor Carrier Safety Act’s Driver’s Hours of Service regulations, which just took effect.
“This will certainly impact not only the flow, but the cost of getting goods to marker,” said NRF’s Gold. “There are new requirements for the driver restart, including two consecutive nights off, which could impact delivery deadlines, especially if the retailers rely on nighttime driving.”
THE BRIGHT SIDE
There are things a dealer can do to counter that increasing cost of truck freight.
“It boils down to one truck making 10 deliveries is cheaper than 10 trucks making 10 deliveries,” Kuntz said. “If five dealers fill a trailer versus 15, I can get it unloaded in a day and travel fewer miles.
“Dealers should make sure to negotiate their own freight … If you have more than a couple of carriers coming to your store that’s probably costing you. Decrease your amount of carriers, and become more important to each carrier you work with.”
He also suggested that retailers not blindly accept vendors’ shipping preferences.
“Some dealers tell vendors to ship it however they want, but manufacturers have their own considerations,” Kuntz said. “The dealers needs to make sure they’re negotiating their own situation.”
Watkins-Shepard is still working on what rates it will bring to October High Point Market.
“We’re open to working with dealers to shrink that increase, or maybe even reduce the cost,” Kuntz noted. “Freight’s all about increasing revenue per drop, and to do that I can raise my rates or have more merchandise to deliver” on a drop.
Hawn believes the recession and slow recovery have retailers in a good position to handle logistics challenges.
“The way I see it, everyone’s gone through the tough times—if you’re still here, you’ll probably still be around,” he said. “Everyone’s cleaned up their act, their inventories are in check, and they’re much more cautious in their ordering. When they introduce a collection, they’ve done their homework, and they’re more confident it will sell. “I talked with a retailer in Texas who told me, ‘I have a bounce in my step again.’” HFB