Furniture Insights: October Ends Dive in Orders

December 29, 2009  by in UnCategorized   

By Home Furnishings Business in on December 30, 2009 New orders for furniture ended a dive in October that began more than two years ago.

For the first month since October 2007, new orders didn't fall from the same month a year ago, according to the latest Furniture Insights survey of residential furniture manufacturers and distributors from the High Point accounting and consulting firm Smith Leonard.

"Admittedly, the October 2009 results compared to a 28 percent decline in October 2008 when comparing to October 2007," said Managing Partner Ken Smith in the report. "But at least, for one month, the bleeding appeared to stop. These results were pretty much what we had been hearing from our conversations."

October 2008 was the first month in 2008 where orders fell into the minus 20-plus percent range. Year-to-date, new orders were 16 percent lower than 2008 year-to-date, down from 18 percent in September and 19 percent in August.

October shipments fell 10 percent from October 2008 and were off 4 percent from September. This compared to a 14 percent drop last month. Shipments in October 2008 were off 20 percent from October 2007.

Year-to-date, shipments are off 18 percent from the same period a year ago. Backlogs grew 5 percent from last month with orders exceeding shipments. Backlogs were up 1 percent compared to October 2008, the first time backlogs have increased over the prior year in quite some time.
 
October 2009 receivables were down 20 percent from the prior-year month.

"This was down from a 24 percent decline last month, although these levels continue to compare favorably with shipments," Smith said. "With so many retailers hurting financially, these results are much better than many would expect."

Inventories in October were 26 percent below October 2008, the same as September to September.

"We hope this means that most of the excess inventories in warehouses have been moved out," Smith said. "Selling off discontinued and obsolete merchandise takes the place of selling goods with reasonable margins. The glut of sales of excess inventories has clearly hurt profitability among most manufacturers and distributors and likely hurt retail profitability by selling items with lower margin dollars."
 
Smith noted that October 2008 was the start of 20-plus percent drops in new orders and that further declines in October 2009 would have raised significant concerns.

"Yet, keep in mind that 59 percent of our participants continued to report declines, so we are not out of the woods yet," Smith said."But also, timing of market orders always has an impact on October results so we will see what combined October and November results bring. Overall, though, we're hearing more positive news out of conversations than we have heard in a long time. Not that anyone is overly excited, but business does seem to be improving, if ever so slightly. We hope that we are right in our thinking that much of the excess inventory is about gone. Not only have we lived with two years of reduced sales, but much of that has been at deep discounted selling prices, especially in case goods. Add to that, pressures to keep prices down, profitability has been hurt."