Shuffling the Import Deck

October 31, 2008  by in UnCategorized   

By Home Furnishings Business in on November 2008 Despite rising costs for furniture production in major source countries, retailers who depend on imported goods say there are still plenty of deals to be had in Asia.

With business slow in the U.S. market, offshore producers are trying to avoid major price increases, and more OEM manufacturers are setting up marketing efforts to take their goods directly to retailers.

That’s good news for U.S. retailers, who also are loath to raise their prices to consumers in the midst of so much economic uncertainty on top of an already tough year for running a furniture store.

“Costs for everyone are going up so there’s pressure on pricing. We’re trying to stay value-oriented, so we’re encouraging our vendors to eat some of those costs, as we are,” said Keith Koenig, president of Tamarac, Fla.-based City Furniture. “The customer is very, very, very value-oriented today, and we’re nervous about increasing prices. In fact, we’ve recently sharpened our pencil and had some price roll-backs where we had the room to do so. It makes a lower margin, but we’re hoping to build market share in a very challenging environment.”

Jake Jabs, CEO of American Furniture Warehouse in Thornton, Colo., traveled to the Shanghai furniture market in September and believes bargains remain.

“We really aren’t seeing big price increases out of Asia as much as we are from our domestic (based) suppliers,” he said. “Two of our factories in China went out of business, but there are still thousands to choose from. A lot of companies doing OEM work are needing to find new sources of business. ... We’re finding as good or better deals as we ever have.”

Another retailer who recently visited China, Stuart Shleifer, president of Shleifer Furniture in Portland, Ore., got back from his second trip there shortly before October High Point Market. He coupled factory visits with the Shanghai furniture show in a 12-day effort to seek out vendors for the Pacific Furniture Dealers buying group, of which his store is a member.

“There are good values in dining room and bedroom, but also in upholstery—and not just leather,” Shleifer said. “At one time (fabric) upholstery wasn’t an issue over there, but we’re finding extremely good values in promotional-price upholstery.”

SERVICE, LOGISTICAL ISSUES While values remain, Shleifer said slow business among their major customers has Asian factories adjusting production schedules, and there’s an impact on service.

“I still found some very aggressive pricing, but often there are significant lead times involved because they want efficiency—long production runs,” he noted. “In many cases they’re out 60 days, especially at the smaller vendors who want those longer runs and wait to mix containers. The larger vendors cut to fill their warehouse, and we look for those deals.”

Some retailers find that direct containers are just too much to handle, especially in periods of slow sales. Frank DeAngelis, for example, of Total Furniture in Kenosha, Wis., planned to shop last month’s High Point Market for distributors that will flow fewer goods more often in order to avoid tying up so much money in the warehouse.

“Although I can handle the containers from a financial standpoint and a physical standpoint, it’s just that that lead time is killing me—not knowing what to bring in and how much to bring in,” he said, “ ... and then if you happen to have an item that isn’t selling quite as well as it should, instead of having 20 in the warehouse, you have 35, and then you have to try to move it out, and then you have all your dollars tied up in the warehouse, it becomes very difficult to then to figure out how to liquidate product, and you start dropping your prices.”

DeAngelis still will buy some case goods in containers to remain competitive, but he’s trying to wean himself from such shipments, which until now have been a staple at his store.

“I’m still buying Asian product, but I’m trying to buy more and more from distributors and people that have things readily available rather than having to wait 90 days and, in some cases, it stretches out even further,” he said.

Gene Winters, vice president of sales, Global Link Logistics, and former vice president of operations at Pulaski, said in a panel discussion at High Point Market examining import logistics that concerns such as DeAngelis’—reduction of inventory and carrying costs—are the biggest issue facing the furniture industry when it comes to profitability.

He said Global Logistic’s FLEX shipments—in which the company brings containers stateside and deconsolidates them for shipment to different customers—is an example of programs importers can look for more of in the future.

“We’ll see a transformation to fewer people touching the product,” he said.

Pacific Furniture Dealers, which includes 65 stores in six Western states, developed a shared container program for members, several years ago, Shleifer said.

“Each one of us wanted the ability to buy as our larger competitors did without the huge inventory commitment,” he said. “We made manufacturers realize that even though product was bound to different stores, it was still one container, one flow.”

The containers go to a member store’s warehouse, where the product is divided for distribution to other PFD dealers in the region.

“Unlike some groups, we don’t pay a fee for drawing out of a central buying group warehouse,” Shleifer said. “We eliminated that cost.”

HITTING THE ROAD Trucking companies also are searching for ways to accommodate the changed delivery dynamic resulting from the furniture industry’s reliance on importing.

Ray Kuntz, CEO of Watkins and Shepard Trucking Inc. and past-chairman of the American Trucking Association, said in the market logistics panel that the environment for trucking in the past 18 months is probably the worst in history, with many companies going out of business in the face of soft economic conditions and fuel prices, and major consolidation of furniture haulers.

“Last year there were 15 carriers for furniture—now there are five or six,” he said.

The furniture industry’s move toward imported goods poses a particularly challenging dynamic. For example, the amount of furniture coming out of traditional furniture manufacturing regions such as North Carolina and Virginia is maybe half the amount coming in, Kuntz said, which makes for a lot of expensive deadheading of trailers.

An aging interstate infrastructure isn’t helping either.

“Since 2002, we’ve lost efficiency every year because of congestion,” Kuntz said. “There are massive shortfalls of funding, and no governor says they’ll accept a new fuel tax.”

Privatizing the interstate system won’t help in the long-term, he said, since private contractors can name their price on tolls for truck use. “We need a 5- to 8-cent a gallon fuel tax to get out of this mess.

“Retailers need to work with shippers more to consolidate deliveries. We’re working wherever possible to see if you can live with one delivery a week versus two,” Kuntz continued. “If you have five or six stores in, say, Michigan, and use your head and ours—and our competitors will do this, too—to see what options are out there, you’ll save some money.”

SEARCHING FOR SOURCES For those looking to explore sourcing opportunities, or spread their risk among an assortment of manufacturers and/or countries, word-of-mouth might be the most valuable research resource.

American Furniture Warehouse, for example, had to shift product around in the wake of the anti-dumping investigation of Chinese-made wood bedroom furniture.

“We were doing 22 bedrooms out of China at the peak, and it’s down now to 13,” Jabs said “We evened out the balance pretty equally among Vietnam, Malaysia and Indonesia. The quality control now is pretty much a given. If you go to the better factories—the Markors, the Strongsons, the Lacquer Crafts—the Chinese and the Vietnamese know they need the quality the American market expects. Maybe that wasn’t the case 10 years ago, but it is now.

“You look for factories that have a reputation, or (ones) that you know are already doing business shipping to someone else who wants the same quality you’re looking for.”

When shopping for Pacific Furniture Dealers, Shleifer said members first want to know about a potential source’s quality and reliability.

“Are the goods good, and will we get what we order when they say it will be there?” he said. “In our industry, until something they make catches your eye, nothing else matters. In our case, we’re not developing product with the factory, but typically buying goods already in the lineup.”

Shleifer said he walks a pretty well-worn path when shopping factories.

“You follow vendors you know or who someone you know used,” he said. “You don’t want to be the trailblazer. Recommendations and word-of-mouth from fellow retailers is very important in many cases.”

Koenig at City Furniture is confident enough in his source plants to not worry too much about “spreading risk”: “We tend to stay with our best suppliers and factories. We have some good relationships, and we want to stay loyal with those who’ve treated us well.” HFB