November 30,
2008 by in UnCategorized 
By Home Furnishings Business in on December 2008
Bedroom specialist Vaughan-Bassett Furniture will be temporarily closing its Elkin, N.C., production facility at the end of January citing the tight economy and the credit crunch gripping the industry.
All manufacturing will take place in the company’s Galax, Va., factory.
The 700,000-square-foot facility in Elkin, which employs 400 workers, will be “mothballed” until the economy and credit crisis eases, according to Doug Bassett, executive vice president and chief operating officer. The closure will not impact the company’s two warehouses in Elkin and in Boonville, N.C.
Bassett said the company will not sell the factory or the equipment so that it will be ready to reopen as soon as the economy brightens.
“We are now facing both Asian competition and a severe and possibly prolonged recession, producing the worst slump in the furniture business in at least 30 years, but one day business conditions will improve,” said Wyatt Bassett, president and CEO. “By keeping both our factory and equipment intact, we will maintain the ability to reopen a portion or all of the facility when demand returns to normal levels.”
Doug Bassett said the company will give priority to the 400 employees out of work if product demand in the Galax, Va., factory warrants the need for more workers.
Bassett said sales through August were off 4 percent, and then from September to now, sales dropped 25 percent to 30 percent.
Regarding the decision to keep the factory, Bassett said the company has a duty to maintain production that keeps up with demand. “We don’t think this recession or credit crunch is a permanent arrangement, and we’ll be ready to ramp back up as needed,” he said.
Vaughan-Bassett maintains about $30 million in inventory in its warehouses, Bassett said, adding that the volume won’t change. Instead, the company will likely drop from its 16 bedroom groups to either 13 or 14 depending on demand.
The company will apply for Trade Adjustment Assistance (TAA) with the U.S. Department of Labor for impacted employees. In addition, the company will work with the North Carolina Employment Security Commission to provide career counseling, job referral and other services to affected employees.
November 30,
2008 by in UnCategorized
By Home Furnishings Business in Furniture Retailing on December 2008
There’s no sugarcoating it. For a lot of furniture retailers, 2009 shapes up as a war for survival. While many look to 2010 as
the year the U.S. economy slogs back from its worst economic crisis in 80 years, it might n0ot come soon enough for some.
The indicators available in early November are bleak. In October, the Conference Board Consumer Confidence Index—in recent years the major bellwether for the furniture industry—hit an all-time low, and 36.6 percent believe conditions will get worse in the next six months, up from 21 percent in September.
The Conference Board’s index of leading economic indicators has been falling since July 2007, while Gross Domestic Product in 2008’s first half slowed to an 1.8 percent annual rate from 2.3 percent in the first six months of last year.
September non-farm employment lost 159,000 jobs through September, and long-term unemployment rose to 2 million people.
Combine skittish consumers, slumping sales and an economy in turmoil with a credit crunch that’s putting the squeeze on even strong retailers’ ability to access the cash they need to run their business, and you get a grim picture for next year that’s no real surprise to anyone in the furniture sector.
“Some will fail for lack of $200,000 or $1 million that’s just not there,” said Jerry Epperson, managing director of Mann, Armistead & Epperson, Richmond, Va., at an American Home Furnishings Alliance finance meeting last month. “Bankers don’t want exposure in the furniture industry specifically.”
Speaking earlier at High Point Market, Epperson pointed to the bedding industry as an indication of just how tough things are.
“Since 1973 ... the bedding industry has only had two off years,” he said. “One was off 0.3 percent and another time it was 1.9 percent. So far, through August of this year, the mattress industry is off 8.3 percent and August sales were down 16.1 percent. So, that gives you some idea of the magnitude of what we’re going through.”
A PERFECT STORM It hasn’t helped that the overall economy tanked as the furniture industry was coming off a couple of already slow years.
“The biggest hurdle is the general economic environment,” said Doug Kays, president of the National Home Furnishings Association (NHFA). “Furniture, as a category, took its hit and made some adjustments in ‘06 and ‘07. ‘08 and ‘09 are about the general economy. If the economy had stayed where it was, the furniture industry would have gone back up this year. We’re now, for the first time, really, at the mercy of the general economy. ... We’ll be on the wave when it comes back.”
Keith Koplan, owner of Koplan’s Home Furnishings in Vancouver, Wash., and president of the Western Home Furnishings Association, says the current state of furniture retail is the worst he’s seen in his 45 years in the business.
“I’m sure there are certain stores doing well in certain markets, but I don’t know where they are,” he said. “The drop-off in business happened with great speed, and the numbers are truly dramatic. I’ve been talking with stores from the Canadian border to Arizona, and the numbers I’ve heard for October are running 20 to 40 percent off. If you’re a small store with sales 45 percent off, you can’t keep your doors open.”
Koplan, who also sits on the board of a local bank, said the current economic crisis will affect consumers at all price points, with a number of newly unemployed white collar folks.
“It doesn’t matter where you live, everywhere you look you see layoffs, and some of them are big,” he said. “That’s trickling down into even things like the medical profession—plastic surgery, for example, isn’t covered by insurance. That’s a significant business, and fewer people are using their own cash or borrowing to get it. More white-collar workers at banks and other financial businesses are finding their jobs more at risk.”
VENDOR WOES Vendors are having their own troubles. According to the latest Furniture Insights survey of residential furniture and manufacturers published in early November by Smith Leonard in High Point, both orders from retailers and factory shipments fell 16 percent in August compared with the same month in 2007; and year-to-date fell 10 percent and 9 percent, respectively.
While vendors’ receivables fell in August, they weren’t in line with prior declines in shipments, a signal that retailers are getting behind.
“We know there is some extended dating going on, but we are also hearing a lot about delinquent payments from retailers,” said Ken Smith, Smith Leonard managing partner, in the report.
Koplan said such delinquencies have consequences for already-struggling retailers.
“Our vendors are hurting,” he said. “Fewer and fewer are breaking even, and they’re tightening up on credit, which is particularly hard on smaller dealers. ... If you’re even a few days late, you’ll get a call, and if you don’t pay they will stop shipping you. Then you’re out of the supply chain.”
Retailers’ banks aren’t extending much credit right now, either. Indeed, many continue to contract existing credit facilities.
“We are very concerned over the credit situation for both retailers and manufacturers and distributors,” Smith said in Furniture Insights. “In the good ole days, when the economy was tough, we could talk to the bankers, who understood the big picture and were willing to work with companies until overall business conditions improved. Unfortunately, that is not what we’re seeing today.”
Epperson did see some hope in the credit situation.
“Credit is going to reverse itself very quickly,” he said at High Point Market. “The liquidity that was put in the system, beginning with the incentive package last spring, will begin to hit in six months and then by the end of this year, the credit that the Feds put in in just the recent weeks will have benefit before year-end. On that side of it, I take great comfort in it being resolved.”
HOUSING HANGOVER Despite the disastrous collapse of the sub-prime mortgage house of cards and its impact on global financial markets, the key indicator of home sales does offer some hopeful signs for the coming year.
Epperson said a glut of homes for sale on the market and dried-up financing for construction has put the kibbosh on building.
”We’re not going to see a bounce-back on new home construction until 2010, but what we will see is a more rapid recovery in existing home sales,” he said.
Lower home prices also mean some values available for those in the position to buy. Koplan noted that while the days of consumers using their home as an ATM are over, credit is available, but the banks are vetting customers far more carefully.
“People can still borrow money to buy a home, but they must have good credit, and they must have a real job,” he said, noting that stricter rules have an impact on furniture sector. “Every time you don’t sell a home, you don’t create a buyer for our industry.”
Epperson said the overall home-owning population is in decent shape.
“Of the 88 million homes out there, only 54 million have mortgages and those mortgages are right at 50 percent of the total value of those homes,” he said. “There’s plenty of equity in those homes. ... We forget about that vast number of people who have homes, are very comfortable and are secure because they have plenty of equity in their homes.”
Most of the people burned in the sub-prime collapse, he said, were buying homes and flipping them, and had no intention of living in them.
WHAT TO DO? Kays at NHFA believes retailers have a decision to make in 2009: Quit, simply survive or grow.
“Those who decide to quit need to understand there’s no one out there who’ll give you any equity for your business,” he said. “Real estate values have dropped, so even if they own their own building, there’s not much opportunity for a return.”
For retailers who want to focus on just getting by until the economy returns to normal, Kays said their opportunity lies in further reduction of expenses and exposure.
“Some retailers are asking vendors for concessions—they don’t always get them but they’re asking,” he said. “Retailers overall aren’t spending as much on advertising, so there are opportunities for better buys in that arena. The whole third-party service provider environment has been hit ... those people need to keep your business and maybe you can negotiate there.”
Retailers seeking to grow market share can take advantage of the same opportunities as those in survival mode, and then some—if they have the financial wherewithal.
“The opportunities lie in diminished competition,” Kays said. “Those competitors that are getting out will be a bargain to pick up. Also, tenant improvement expenses are a big cost for a new store, and if you’re moving into an existing furniture store you avoid a lot of that. ... And in terms of moving into empty boxes, this is one of the most opportune times for getting a better deal on real estate and the contracting to fit out your new space.”
Koplan agrees that diminished competition creates a huge opportunity for retailers who make it out of next year in business.
“So many stores won’t survive the downturn that when it does come back, those that are still here will benefit, and hopefully they will have learned a new way to do business,” he said. “That means creating customer wants and desires, and fulfilling customer needs instead of relying on price.”
Epperson pointed to furniture categories that appear to do relatively well.
“Take a look at what’s selling right now, especially items,” he said. “Rooms to Go advertised 21 items, all available in the store including mattresses, accents, tables, all for $299.”
The home entertainment category also shows promise.
“Consumer Electronics forecast a big jump of households with high-definition televisions,” Epperson said. “A lot of those homes will have multiple televisions, so that’s actually understated for (the furniture industry).”
And believe it or not, energy issues could be a positive for the industry in the long run.
“Look at how many major corporations are moving toward more people working at home,” Epperson noted. “Anything that keeps you in or closer to the home is good for us. A lot of people are improving their homes versus going on expensive vacation.”
TOO MANY MARKETS? Koplan believes strongly that the industry as a whole must take a hard look at furniture Markets, which he said cost retailers and vendors—not to mention consumers—too much unnecessary expense.
“We have two huge Markets, and whether we say so or not, the expense of exhibiting is built into the price of furniture. We need to look at one major Market, and even consider introductions once a year,” he said. “Hardly anyone sees the product they ordered at one Market arrive before they go to another. You’re being asked, in an uncertain economy, to commit to more merchandise when what you already picked hasn’t arrived.”
Koplan added that the vendor side needs to rethink its entire approach to product development: “Right now we have constant obsolescence as opposed to doing more research on what will sell and meeting those needs. What Universal did with Better Homes & Gardens is the best example I can think of for that approach.”
He also doesn’t plan on waiting around for the rest of the industry to see it his way.
“I’ve decided to go to one show a year for most of our buying—I won’t say which one,” he said. “We’re only going to make one major change a year in our lineup, and I should have done it that way all along.
“We have an environment and an opportunity for change. The old way isn’t doing it.”
COME ON, 2010 So when does it end? Koplan’s earliest hope for a real turnaround in the economy is Fall 2009 to Spring 2010.
“The only thing I’m confident in is that we haven’t seen the bottom, and when it comes we won’t know it was the bottom until six months past it,” Koplan said. “I don’t see anything in the immediate future that will turn things around. If we’re lucky we’ll have more of the same next year, and that means sales flattening where they are. People need new confidence in their job security, home and savings. Until people feel better I don’t see things picking up”
Kays believes next year is up for grabs, and that the Obama presidency is an X factor of sorts.
“Will the new president institute, as he says he will, programs to give businesses an incentive to grow, invest and keep jobs at home in the United States?” he said, adding that he remains an optimist for the long term.
Epperson predicts a tight first half of 2009 for the furniture industry and “the second half will be better, but only because the second half of ‘08 was so bad.”
For the overall economy, he predicts down quarters for 2008’s fourth and next year’s first:
“The first quarter of next year will only be down about 1.5 percent, the second quarter of next year will be flat, and we will show nice solid gains in the second half of next year, and the wonderful, wonderful 2010 that can’t get here fast enough.”
Senior Editor Jo Fleischer contributed to this article.
Watching the Ticker Tape
Up and Down Stock Market Gives Consumers the Jitters
By Powell Slaughter
Even consumers who don’t follow the stock market get nervous when they read headlines about big swings on Wall Street. And those that do—often people who traditionally have the disposable income the furniture industry needs—really tend to tighten their belts when share prices are unstable.
“That makes people feel very uncomfortable about their retirement plan or savings,” said Western Home Furnishings Association President Keith Koplan. “Even assuming everyone keeps their job, people are watching their savings disappear, and they just aren’t thinking about a big-ticket purchase. Furniture is and always has been a very postponable purchase.”
A step in the right direction would be for traders to set aside their emotions, said Erick Ellsweig, a vice president at the Greensboro, N.C., office of Merrill Lynch. He gave attendees at November’s AHFA financial meeting a look at current conditions in financial markets. While the United States is in its worst financial crisis since the Great Depression, he doesn’t expect such a total collapse is on the way.
“We’re not in another Great Depression,” he said. “The government took proactive action this time.”
The stock market’s volatility right now is more emotional than realistic.
“At certain points in October, there was a large percentage of stocks priced below the value of the company’s liquid assets,” Ellsweig said. “That’s irrational pricing. ... We’re not trading on fundamentals. We’re trading on fear.”
He predicts the eventual recovery will be have a lot of bounces downward in measures such as the Dow Jones Industrial Average.
The stock market took a tumble after the presidential election in November, and there was a reason for that, said Mann, Armistead & Epperson Managing Director Jerry Epperson at the AHFA meeting.
“A significant amount of the market upset after the election is that Wall Street realizes that Obama, combined with a Democratic Congress, is the most business-unfriendly regime since Roosevelt,” he said, noting that big swings in measurements such as the Dow Jones Industrial Average might be the norm.
Long-term, though, Ellsweig isn’t too worried about stock performances with Democrats in power.
“If you had $10,000 and only invested when Democrats were in office going back to Kennedy, you’d have $300,000,” he said. “With the Republicans—excluding Hoover—you’d have $50,000.”