The Industry Outlook

November 30, 2008  by in UnCategorized   

By Home Furnishings Business in Furniture Retailing on December 2008 No doubt 2009 is shaping up much the same as 2008. Here, we’ve compiled forecasts and prognostications from many industry notables on what the new year holds for the furniture industry, and a bit on strategies they are looking to implement to keep business afloat. Here’s hoping the thought sharing helps in planning for what is sure to be another tumultuous year for furniture.

Bill Hartman, president
Furniture First buying group
Harrisburg, Pa.

“My feeling is 2009 will be predominantly like the first three quarters of 2008. ... One thing we’ve been working on is providing training to help our retailers increase closing ratios and improve average tickets. We’ve trained about 70 percent of the membership (of 160 companies with 328 stores) on mattresses. We’ve also had about eight more general sales training programs over the past two years to help sales managers and sales associates. We hold regional training meetings that are set up so everybody can get there with less than a three-hour drive. That has been part of our strategy for some time, because we just knew that the economy was going to get extremely tough, so in late 2006, we planned all this training out.

“It helps our salespeople, it helps our stores and it helps our suppliers. The more difficult strategy is getting people in the front doors, and that becomes a continual effort. Part of it relies on our network of members to share information and ideas when something has worked. We do it through advertising, sharing advertising ideas and using our Web site.

“It’s just incredibly difficult right now, but (Veteran’s Day Weekend) sales provided a little bit of a glimpse of hope. Hopefully, it will continue into the next weekend, too.”

Tom Olinde, president

Olinde’s Furniture

Baton Rouge, La.

Olinde, who is also 2008 president of Furniture Marketing Group, a buying group whose members operate more than 500 stores, said, “I really feel it’s going to be a difficult Christmas and a difficult 2009.

“The retailers who are going to fare better are the stores that don’t have too much debt or are too leveraged. Those stores can kind of dig in and try to improve their operations to operate more efficiently, lower their inventory levels and operate in a (very lean) way. That’s what we’re trying to do with our company (which includes four Olinde’s stores and four Ashley HomeStores).

“In terms of inventory stock levels, we’re trying not to buy as deep container-wise as we have in the past. If there are warehouse programs that make sense and that can be competitive, we look to those programs. ...

“Independent retailers are going to have to think hard that way. You’re still going to have to buy a significant number of containers to be competitive, but you can still look for vendors that offer good just-in-time-type delivery, as well. That way, if things get slow or you have a bad buy, you’re not stuck with a container and more coming in.”

Art DeFehr, president and CEO
Palliser Furniture
Winnipeg, Manitoba, Canada

“Over half our market is outside the United States, so while the American economy has a huge impact, we have other markets that are very important, too. If you follow the exchange rates, the Mexican and (Canadian) currencies both dropped 15 percent to 20 percent in (mid-October), so our areas of production have had a devaluation of currency. It does two things: It makes our products more competitive into all markets, and it also means that the markets that we serve like Canada and the U.S. have more trouble importing from other countries.

“So, the currency moves are hugely important to us, and where some retailers (in Canada) see them as negative, they’re actually significantly positive in our case, and they make us more viable, help us hold prices in the U.S., and make it easier to compete in our home markets. ...

“In the U.S., we shift to be relatively more competitive, because we produce in the currencies that are moving in the right direction compared to China, which tends to be (increasing). It used to be the Canadian dollar was on par with the U.S. dollar, and now it’s at 82 cents to 83 cents.”

Jeremy Sommer, president
Zocalo
San Francisco

“In Asia, factories are looking for customers. We have the ability to have really excellent factories make product for us that a couple of years ago would have been completely full with product. It’s true in Vietnam and throughout Asia. In addition to factories slowing down, freight rates are coming down and fuel surcharges are coming down.

“These are all positive things for the economy (in the U.S.). I think the biggest impact in 2009 will be an expected 12-percent increase in (existing home) sales. I think it’s going to be even higher because there are vacant houses all over America that the banks have to get people into. ... Many local governments are trying to get people in the empty houses because they realize what a problem it is.

“So, getting people into these houses is going to be a big priority in 2009, and all of those people are going to need furniture. During the last two years, you’ve had people leaving homes. Now, you’re going to have all these people entering homes again, and, in a lot of cases, they’re going to be bigger homes.

“Also, in slow times, it’s an opportunity for businesses to fine-tune what they’re doing. We’ve spent a lot of money on technology and improving different systems within our company that would be difficult to do in a boom period. ... No one looks at every aspect of their business during good times. They look at things during tough times, and when business is good again, it just means you’re going to be that much more profitable.”

Peter Bjerregaard, president
Ekornes USA
Somerset, N.J.

“There’s no doubt in my mind that 2009 is going to be one of the most difficult years we have seen in a long, long time. What we’re going to do is more of what we already do—we’re going to put more money into advertising and marketing our brand, and we’re putting more money into promoting our brands together with retailers.

“What we’re saying to our retailers is ‘Stick to the plan! Think about what brought you to this point, from having, maybe, one store to having three or four. Build on your strengths. Don’t go crazy putting everything on sale because it’s not going to make a difference.’

“We know traffic is going to be down to the stores because of the economy and the fact that the consumer is researching a lot more on the Internet before they get to a store. Then, as a retailer, it’s the job of the retailer to have motivated people in the store who can close the people who come in. Customers are more informed because of the Internet, and they demand a salesperson who can add on to what they already know.

“They don’t need someone who can tell them basic stuff. That puts a lot of pressure on the sales associates in the store. It’s a challenge (where traffic is slower). When a customer comes in, the associate has to be ready. So, retailers have to make sure their sales associates are motivated and they need to keep the mood in the store as positive as they can.”

Kurt Darrow, president and CEO
La-Z-Boy
Monroe, Mich.

“If we’re going to have a difficult 2009, I think you have to be prudent about your expenses.

“There probably will be a lot less store openings. I don’t think you can cut your advertising to nothing. That would just give the consumer no reason whatsoever (to shop), but there certainly won’t be as much risk-taking, and retailers probably won’t carry as much inventory. There will probably be some contraction going for a a while until we see some (more positive) signs. It’s also important to remember that the level of business is certainly not consistent across North America. There’s the five or six really hard-hit states. There are some areas of the country that have been holding up okay. Most of the people I’ve talked to in Canada have been pretty good, but the recent rise of the dollar may change some of those dynamics. ... I think retailers have to try to get the most out of their salespeople in the stores. Our close rate as an industry is not that good relative to other industries. I realize people shop multiple stores before making a purchase, but how many of those names do we capture? What kind of follow-up can we be doing? That kind of marketing isn’t expensive. It takes our salespeople’s time when there are not customers in the store. As for reps, I think sales organizations need to be sure they’re not out in the field participating in doom and gloom, because that can become a self-fulfilling prophecy and it feeds on itself. We try to remind them of that, and we reinforce the old adage of going back to basics and making sure you’re training on features and benefits and uniqueness of product. ... Also, it’s a time when salespeople also have a more listening ear and can be more able to learn and develop skills. Sales associates can be more receptive when things are tougher and shoppers aren’t beating down the doors and the sales process isn’t as easy.”

Farooq Kathwari, chairman and CEO
Ethan Allen
Danbury, Conn.

“I think (the industry) is in a major crisis. It’s almost like a forest fire. It has to be put down. What’s happened, I think, is the downturn or recession has been expedited. In my view, we’re going to come out of it faster. My perspective is you’ll see a major change (soon). ... My philosophy has always been is you have to be ready for a recession before it comes. We have to be ready for the next (positive) cycle before it comes, too. At Ethan Allen, we had been ready for the recession, having made all the changes we’ve made in recent years. We’ve been able to maintain our policy of not having discount sales. We are holding up gross margin even when sales are, obviously, down, and we’re profitable with cash, and we don’t have any bank borrowings, so we don’t have that as a worry.”

Gary Fazio, CEO
The Mattress Firm
Houston

“We do a lot of contests in the stores on weekends to try to stimulate some activity and competition to get (our) people revved up. We’re looking to hold some (staff meetings) in December and January to talk through these things. For a lot of people, this might be their first or second recession, but it’s my fifth, and I think the best approach is to be as direct and open as possible. Also, with our experience, as management, we can provide perspective of having been through a recession and explain, ‘Here is how we adjust.’ I know (employees) appreciate an open and honest talk because it shows them we don’t have our head in the sand, so we discuss those things as much as we can when we have our calls with our managers on duty. The great thing about mattresses is that the consumer who is coming in the store is very serious. There’s not a lot of (casual) shopping in our category. So we focus on our conversion rates and ways to create values that get consumers to come in.”

Howard Haimsohn, president
Lawrance Contemporary
San Diego

“For our [Contemporary Design Group (CDG) buying organization] conference this year, one of the things that came up was keeping people motivated, finding things to do and how can you be more productive when things are slow and there’s downtime? ... Those are going to be key topics we’ll be dealing with (at the December event). The West Coast is supposed be the worst part of the country (for foreclosures). ... I’m hopeful that we may come out of this a little bit sooner than some other areas of the country just because we went into it sooner and were affected more. ... We rode (rising real estate values) up steeper than many other areas, so the ride down is steeper as well. It’s all a mindset with people with the whole housing thing. ... We have people who thought they were rich because of their home value and now they think that they’re poor. In Oklahoma, they never felt rich or poor due to their home values. At our (Dec. 5 CDG meeting), a lot of time will be spent on operational efficiency; how people are cutting overhead, how they’re reallocating their resources, how they’re making adjustments. We heard from members who wanted to talk about keeping staff members motivated and busy. We’ll be spending a lot of time on those kinds of issues. The (challenge) is they may not always have the energy and the motivation. On the flip side, they can be more motivated because every ‘Up’ counts more, but you can kind of have difficulty maintaining that enthusiasm, too. There are a couple of different sides to that.”

Woody Whichard
Midtown Furniture Superstore & Mattress Center
Madison, N.C.

“The economy is very uncertain, but if I want something to change, I believe it’s up to me to change it. ... Plus, our local economy has not been hit as hard as the nation as a whole.

“I feel that things will start improving around June. Our challenges as a 60,000-square-foot store in a small town are that many customers drive 25 miles (from the Greensboro area) to get here and will pass other stores to get here. We have to set ourselves apart. We’re the world’s largest Lane Furniture Gallery, we offer the best selection at the price points we carry, we have a seven-day money-back guarantee and we continuously have a sale to promote our products.

“Our motto is, ‘Advertise, advertise, advertise.’ We give the customer reasons to shop with us and we (reinforce) what those reasons are. ... When it comes to credit, I’ve seen some tightening of consumer credit, and I feel that the credit problems consumers and retailers are experiencing were not caused by us. The government will not be helping my business if I get myself in the position some of these (banks) are in. I won’t be getting a reward from anyone if I run my business improperly.”

Ron Wanek, chairman
Ashley
Arcadia, Wis.

Ashley Chairman Ron Wanek believes the economy is going through a necessary adjustment.

“Housing prices, the stock market were both overvalued,” he said. “Capitalism, from time to time, goes through a cleansing, and right now that’s exactly what it’s doing. I live in Florida now, and from what I can see from shopping for houses and waiting for decent prices ... In late 2005 a $100,000 home went for $300,000. They’re coming back to reality.”

Wanek also predicts further consolidation among both vendors and retailers in the furniture industry.

“You’ll see more business percentage-wise at the low-medium to promotional price points, which means more retailers and manufacturers will have to work with lower margins,” he said. “They’re all going to have to ‘lean down’ their organizations.”

As housing comes back, he also predicted fewer “McMansions” being built.

“A lot of people have lost a big portion of their net worth,” he said. “I think you’ll see a downsizing in the new homes being built, including a lot of homes sold at the high end of the market.”

The government’s relief package for the housing collapse will kick in during the second half of next year, Wanek noted, which could help settle consumer nerves.

He also hopes the economic situation will put a damper on the rising cost of making furniture.

“We’ve had price increases for everything, and hopefully we’ll see a big correction in that regard,” Wanek said. “It’s already beginning to happen ... fuel, foam, transport, raw materials.”

Steve Stagner, president and COO
The Mattress Firm
Houston

“There’s is a lot of art and science in (generating store traffic) this year. One thing we’ve tried is using promotional items, such as giving away a body pillow for $1 that sells at Linens ‘N Things for $19.89. Obviously, we’re not making money on it. We’ve tried other things to generate enthusiasm to drive people to the store and get people talking. Obviously, 20 percent of consumers are postponing purchases (across the furniture industry). ... It’s the same business, but it’s just that the water level is lower. ... What we need, more than anything, is for consumer confidence to come back.”

Greg Follett, owner
Follett’s Furniture
Lewiston, Idaho

Greg Follett manages Follett’s Furniture, a single-store operation in Lewiston, Idaho. He believes smaller retailers need to beware “giving it away” in tough economic times, but still show some flexibility in how they do business, especially as consumers get tapped out on their credit cards.

“A lot of people have done things right in the first place ... and people are learning to be more responsible,” he said. “They’re buying things with the money they actually have.”

Follett, who’s former president of the Pacific Furniture Dealers buying group, did note that some of his PFD colleagues are losing much of their customer base that’s always relied on credit.

“I decided a couple of months ago to get away from financing,” he said. Follett’s hoping to institutionalize a pricing model the store developed as part of a “retirement sale.” (His father is selling his portion of the business, and Follett plans to completely re-merchandise the store after liquidating existing inventory in October and November.) Instead of prices always ending breathlessly in .95 or .99—“$199.95!” $299.99!”—he’s mixing up the pricing.

“Getting out of the traditional furniture store pricing model is really working out,” he said. “People are becoming more responsible with their money. Because of the pricing we’re doing—it might be a difference of eight bucks—they feel they’re getting a better deal.”

Follett also believes retailers need to have some faith in what’s going on in the country.

“When gas prices kicked up, you saw American ingenuity in the way people adjusted, and that’s why I want to promote ‘made in the U.S.A.’ when we re-merchandise,” he said. “We’re also going into the concept of American-made product for everything on one side of the store. We’re in a small-town, Middle America location, and that seems important here.”

Follett Furniture also is examining delivery fees.

“I’ve always been ‘free delivery,’ but for my father’s retirement sale we charged 15 bucks ... and out of town for $25,” he said. “But we’re flexible ... We’re trying to go a little farther to make the sale, so I don’t want to build it into the model.”

Flexibility also includes a no-commission sales structure.

“We have a spiff system, but customers can talk to anyone when they come back in,” he said. “The other salespeople don’t blow a customer off because they won’t make money on it, and there’s no infighting among staff.”

A good experience leads to good word-of-mouth, which is particularly beneficial in smaller markets such as Lewiston.

“If you can show some interest in your customer’s real life, it takes down some of those walls between you and the sale,” Follett said. “There is nobody out there right now who’s not hurting.”

Irv Blumkin, CEO
Nebraska Furniture Mart
Omaha, Neb.

The industry is obviously in for a challenging year, but opportunities do exist for furniture retailers. That’s the opinion of Irv Blumkin, CEO of Nebraska Furniture Mart in Omaha.

“Our business was positive up until October, and when the government was going through the bailout and the stock market went through turmoil, things just stopped,” Blumkin said.

Consumers’ psychology has changed, he said, noting that the onslaught of dire headlines made people more skittish than ever. Hopefully the just-completed presidential election will help settle things down.

“They need confidence in what’s going to happen. ... It’s going to stay tough before it gets better,” Blumkin said.

The good news is that slow times give retailers a chance to evaluate everything they do in their business.

“There’s also the opportunity to gain share” as other retailers pull back on their marketing, he said. “We want to remain aggressive relative to other retailers and other industries” that want a share of consumer dollars. HFB

‘Made in America’ Sees Brighter Future

By Jo Fleischer

Furniture makers with factories here in America say prices from Asia are still cheaper, but the gap is narrowing, and retailers are seeing more benefits in ordering from a warehouse that’s not half a world away.

Some of the few remaining American furniture manufacturers see positives in the fact that producers in Asia have been hiking prices in recent months, but say the real advantages of making furniture in the United States still involve being able to deliver rapidly, respond quickly, and offer furniture stores ways to cut costly inventory.

Vaughan-Bassett Chairman John Bassett III said price hikes in Asia come as a relief, because of what they reveal about overseas producers. “For eight or 10 years, there never were any price increases out of China and Asia,” he said during a forum presented by the American Home Furnishings Alliance during the High Point Market. “When they raised prices, it meant (factories in Asia) had come to the end of what their profits margins are. ... That tells me where I am in relation to them (for the first time). I know what my competition is.”

Bassett said “global competition has made us a better company,” adding that Vaughan-Bassett will continue to emphasize a deep selection of products, any of which can be delivered to a retailer in seven days or less.

Henry Vanderminden IV, president of Granville, N.Y.-based Telescope Furniture, said the company has a similar approach and its domestic factory also offers customized products, which is something overseas producer can’t provide. He said the prices of overseas furniture producers continue to be “a little less than we can do domestically,” but said that price gap is closing. “We’ve had to raise our prices more on (items) we’re importing than on domestic product” this year, he added.

Carol Gregg, the founder of Red Egg, a manufacturer of Asian-themed furniture, initially used factories in China, but shifted production of most wood pieces to the High Point area three years ago. As a smaller producer, Gregg said the three factories she works with in North Carolina can build to order, which eliminates the complexities of ordering products from factories thousands of miles away. “A couple of the reasons I did it was for the finish and quality and (eliminating) the delays of waiting for a container to come,” she said. “Also my conscience didn’t like the idea of shipping wood from North Carolina to China to manufacture my furniture and then have those products shipped back.”

Gregg said over half of her company’s production is now made in the High Point area, and one of the factories she works with hired 12 additional employees earlier this year.

Asked if rising prices in China could restart more factories in the United States, Bassett said it’s almost impossible due to an environmental permit process that can take 18 months or more. “I can see more shifts coming back to (an existing) factory, but when we shut down these factories, we gave up all the permits we had and they will never come back again,” Bassett said.