Daily News Archive
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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
October 31,
2008 by in UnCategorized
By Home Furnishings Business in on November 2008
To hear furniture manufacturers describe it, California’s stringent new formaldehyde standards are the most difficult regulatory challenge for Asian furniture producers in the modern era.
While no one is arguing against the regulation’s public health goals, furniture makers say the effective date—Jan. 1, 2009—hasn’t allowed enough time for composite wood makers in Asia, in particular, to set up the testing labs—including on-site labs at the factories—that are required by California regulators.
In short, officials say, California’s regulatory arm is reaching across the Pacific to require enormous changes by furniture factories in Asia, and around the globe, to meet what the state’s Air Resources Board calls the “Airborne Toxic Control Measure,” or ATCM in industry shorthand. The rules are aimed at answering concerns about the health effects of formaldehyde emitted thorugh composite wood, which is thought to cause cancer and contribute to other illnesses.
At the same time, the ATCM is also changing the way furniture is made for retailers in our nation’s 49 other states, since most observers say it’s unlikely, in the long term, that wood providers will move to produce non-compliant wood for furniture stores outside California.
RETAILERS UNPREPARED Many manufacturers and a California-based retailer organization worry that California’s furniture stores are unprepared for the state’s efforts to curtail formaldehyde with an enforcement strategy that will be initiated inside furniture stores and could have store owners facing severe penalties along with their suppliers.
“I think a lot of the smaller retailers—as much as we’re telling them about this—aren’t realizing what they’re going to have to do” to comply, said Sharron Bradley, executive director of the Western Home Furnishings Association.
The scope of California’s regulatory reach is enormous because ATCM rules don’t just apply to composite board or furniture. They apply to any composite wood in any product offered for sale in the state—including everything from upholstery frames to pencil boxes, lamp bases and picture frames. Penalties are stiff, and a single violation can lead to retroactive fines for furniture a store sold before the initial non-complying item was found by California enforcement agents.
There are three important dates to remember: The California Air Resources Board’s (CARB) formaldehyde regulations take effect Jan. 1, 2009. Manufacturers of composite woods like plywood, particle board and MDF, including those in Asia, have a 90-day “sell-through” period, meaning they’ll be able to draw down inventory until April 1, 2009. Furniture makers have an 18-month sell-through period, setting a milestone date—or full compliance date—of July 1, 2010. “By July 1, 2010, all of a (furniture factory’s) inventory and all of their finished goods will be manufactured using CARB-compliant wood products,” said Bill Perdue, the American Home Furnishings Alliance’s vice president for environmental affairs.
INCREASING COSTS Industry reps said the CARB regulations will definitely increase costs for furniture producers, but added it’s too early to know just how much prices of composite wood products will rise. “With this rule, CARB has created a global commodity, and that’s CARB-compliant composite wood products,” Perdue said. “The second thing this rule has done is it’s given us six months, essentially, to put the testing infrastructure in place in countries where, for the most part, a testing infrastructure was nonexistent. So, (the industry) has been scrambling and working very hard with (private test labs outside Asia) to get this testing infrastructure in place.”
The efforts are complicated by the fact that two types of testing are required. In addition to off-site testing facilities, thousands of board factories across Asia must have on-site quality assurance labs to do daily tests, as well.
“It’s a huge concern (for Asian furniture factories) because the record-keeping is supposed to start in January, and, right now, the factories are just starting to find sources that even have CARB-compliant wood,” said Gil Sturtzel, vice president of purchasing, Davis International, who has traveled to China four times since April.
COMPLEX REQUIREMENTS For Ashley, the industry’s largest furniture producer, achieving compliance has involved multiple trips to Asia, but the company is confident its wood suppliers will be in compliance before Jan. 1, said President and CEO Todd Wanek. He said the regulation’s record-keeping requirements, which put a heavy emphasis on “chain of custody” reporting, have involved extensive computer programming changes to assure compliance. “Simply put, if the CARB compliance officers come to your store and select a piece of furniture to be tested, you must be able to give the item-level chain of custody,” he said.
Wanek still worries that, with the complexities involved, other importers won’t be able to meet ATCM requirements. “We’re very concerned about the furniture industry’s state of readiness for this law,” he said. “Retailers need to take this seriously and make sure the proper procedures and documentation are in place. ... Many (importers) don’t have the infrastructure to develop a system of compliance at the factory level.”
ADDING TO THE CHALLENGES IMPORTERS FACE The complex requirements come at a time when furniture makers in Asia are being pulled in different directions by economic uncertainty. “China and Asia are in deep turmoil just as economies worldwide are in turmoil,” stated Emerald Home Furnishings CEO David Beckmann, whose company uses production facilities in China and Malaysia. “Pricing is inconsistent and manufacturers are changing direction like we change clothes, and it’s taking constant effort on our part” to keep pace.
Sturtzel said rising prices in China are prompting some producers to shift as much production to Vietnam as possible, at least for those who have facilities there. He said Vietnam’s relative stability—and the fact that no duties are in place—is making it a safe haven for producers who have struggled with cost increases in China stemming from the rising value of its currency, lower VAT tax rebates and issues like inconsistent electricity delivery last summer. Still, he said, “I have groups coming out of both China and Vietnam this Market, and I don’t see any difference in pricing.”
What is striking in China, he said, is how much producers there have shifted their focus to higher-priced goods with more potential to deliver higher margins. “If it’s promotional stuff, they just didn’t want to build it,” Sturtzel said. “If it’s not worthwhile from a profit perspective, they won’t entertain it. Everybody is raising prices, and the factories are doing everything they can to run furniture that they can make money on. So, they’re being really picky about the new projects they’re taking on.”
ALL ROADS LEAD TO CALIFORNIA WOOD Industry officials say CARB-compliant wood will eventually become the de facto standard for furniture sold in the U.S. due to the complexities inherent in managing two separate sets of inventory.
However, Sturtzel said it will be tempting for large East Coast-based furniture chains to insist on wood that doesn’t meet California’s standards—since that CARB-compliant wood is expected to carry a price tag that could be anywhere from 6 percent to 12 percent higher. “There are factories that may have to decide whether they’re going to sell California retailers because these regulations just aren’t going to matter to some of the big guys in the East,” Sturtzel said. “They’re not going to want to pay more to meet California standards.”
A CALIFORNIA-ONLY STRATEGY NIXED Wanek said Ashley considered a “California-only” strategy, but determined that it would be too difficult to manage. Plus, he believes it’s likely that that the federal Environmental Protection Agency will adopt a standard similar to CARB’s ATCM within a year or two.
Michael Cohen, vice president of sales at Emerald Home Furnishings, an importer based in Tacoma, Wash., said estimates of how much the CARB standards could increase wood prices vary widely. He’s heard estimates of 3 percent to 12 percent, but he said the CARB-compliant products also require a longer wood-curing process that, in many cases, slows production: “If you’re used to producing 100 dining sets in a day, for example, you may only be able to produce 80 sets a day, which, obviously adds to the cost of those goods.”
Cohen, who traveled to China for Emerald in September, said the factory owners he met with were struggling to come to grips with falling production levels, which are an outgrowth of the worldwide economic slowdown. “Some factories are shipping more business to countries in Europe, but they’re not getting the kind of volume that they need to keep their overhead down,” he said. “It’s harder to absorb your fixed overhead when your production is 85 percent less than it was before.”
Most of the composite wood being sold in the United States already meets CARB standards, and the CARB-compliant wood doesn’t carry a “substantial price premium,” said Curt Alt, vice president of marketing, the Composite (wood) Panel Association. He said producers began moving to producing low-formaldehyde products in 2002 as part of a voluntary industry effort called the Environmentally Preferable Program (EPP), Alt said.
EXPORTING RAW MATERIALS TO CHINA However, with little testing infrastructure available in Asia, Alt said some U.S.-based manufacturers of furniture and other wood products are planning to ship CARB-compliant board from the U.S. to factories in Asia, at least in the beginning. Shipping wood across the Pacific would obviously be more expensive, but he said the producers see it “as an interim solution until the amount of CARB-certified material in China reaches a level where it can support the current levels of production in China.”
For retailers in California, compliance means receiving—and keeping on file—documentation showing that wood products are compliant. Retailers also need to make sure that the product or the box it came in is tagged as complying with the ATCM. HFB
October 31,
2008 by in UnCategorized
By Home Furnishings Business in on November 2008
More expensive fares for fewer seats on long-distance flights to Asia and South America are a necessary evil for retailers and their vendors who depend on overseas sourcing. While furniture imports slowed this year in reaction to soft retail conditions, they still play too important a role in some business models for people to stay home for too long.
“In light of the amount of business we’ll do with a collection, we don’t really focus on how much we travel,” said Keith Koenig, president of Tamarac, Fla.-based City Furniture. “We’re careful, and it costs more, but it’s not something that will keep us (from traveling).”
The same is true of American Furniture Warehouse in Thornton, Colo., which has relied heavily on direct sourcing for years. “The way we do business, we have to go,” said Jake Jabs, chief executive officer. “The expense is affecting us a little, but not that much.”
Jabs did note that it takes more digging to find acceptable air fares. “United Airlines wanted $10,000 for business class, but we went with Singapore and got it for $6,000,” he recalled. “You do have to shop around a lot more these days, but we’re finding that the American airlines seem to be doing the big price increases.”
Foreign flag carriers do seem to offer better deals, said Rob Walters, a travel agent at Worldwide Travel Associates in Avondale, Pa. He has long experience with business travel to Asia and Latin America for clients in the apparel industry.
“My experience has been that foreign carriers tend to offer lower fares and greater incentives,” Walters said. “Out of Philadelphia, the majority of my clients go (to Asia) via Europe versus the West Coast. With advance planning you can usually get a better cost from a foreign flag carrier.
“Second, we’ve seen increases in airfares because of fuel surcharges,” Walters continued. “Within the last couple of days (in mid-October) we’re seeing fuel surcharges falling because of the lower price of gas. British Airways and Singapore Airlines both lowered theirs, and once one airline starts a trend like that, they all tend to follow.”
Scheduling is more complicated as well, as cash-strapped carriers cut back on flights. “Thai Airlines, for example, canceled their non-stop from San Francisco to Bangkok,” Walters said. “That’s not just to Asia, there are fewer flights globally.”
LOOKING FOR A DEAL There are deals to be had, said another travel agent, Blake Fleetwood. His Cook American Express agency deals with a lot of discount business- and first-class tickets.
“We have found increased demand lately because business people are balking at paying the outrageous last minute prices the airlines are charging—$8,000 business class to Europe,” Fleetwood said via e-mail. “But they still have to go, so in these hard times there is great appeal for people who deal in discounts, net fares and consolidator tickets, which can bring these prices down considerably.”
Travelers to China don’t want to spend 15 hours in a cramped coach seat, but the good news is that with airlines having trouble filling business class at regular prices, Fleetwood said that more are releasing those prime spots to ticket consolidators so they don’t have to lower published rates. But the discounts come at a price.
“These fares are more restrictive and require booking in an inventory that only comes up when the airline doesn’t expect to fill the plane,” Fleetwood said. “Most importantly, you have to find reliable places to get them—only deal with established companies—and you must pay with a credit card. American Express is best, but others will do.”
While consolidators charge cancellation and change fees, he said that business people saving, say, $4,000 on a published fare don’t worry much about a $250 cancellation charge.
Fleetwood added that not every unpublished fare is a consolidator fare. There are military discounts, corporate discounts and other specially negotiated fares—such as cruise and package fares—are also considered “unpublished,” he said, and are almost never consolidator fares.
Fleetwood suggested that those interested in more about the history of such fares read Andrea Bennett’s two-part piece on aviation.com. “They are often non-refundable for sale fares, and there are cancellation and change fees for tour fares where there are hotels involved,” Fleetwood said. “Consolidator tickets also have cancellation and change fees, but when you are saving $4,000 over the published fare, business people are not so worried about a $250 cancellation fee.”
VOICES OF EXPERIENCE Vendors, of course, have been going to Asia for years, and they note that costs are up not only for air travel, but also everything from hotels to ground transport. Gil Sturtzel, vice president of purchasing at Davis International, for example, had made four trips to Asia between the April and October High Point Markets.
“Taking a shuttle from the hotel in Dongguan to Hung airport, I’ve had to pay $200 cash, and I used to be able to do that for $75,” he said. “It’s not unusual to go to Ho Chi Minh City and see hotels for $400 a night at nicer hotels. With airfare, if you’re flying on U.S. carrier business class, I’ve seen quotes as high as $13,000 for round trips from High Point to Hong Kong. Flights, business class, used to be for $2,500, if I used some miles. That was 18 months ago.”
Sturtzel also noted the impact of fuel prices and the paucity of seats, and said booking early is more important than before.
Some companies avoid some of the travel costs by having people on the ground. “You have to either do that or go over there a lot,” Sturtzel said. “You have to do it. It’s something you can’t assign. ... We don’t have an office over there.”
Emerald Home Furnishings does have personnel in Asia, said Michael Cohen, vice president of sales and marketing. The company has offices in China and Malaysia with quality-control staff members who are locals.
“We have staff everywhere we do business who live there—those costs don’t go up,” he said. When Emerald does travel—company President David Beckmann went to Asia in October and returned this month—it feels the bite.
Beckmann left two days after Cohen for a September trip to Shanghai Market and paid $7,000 for business class. Cohen paid $3,800.
“It’s a high-demand season—everybody was going over when he was going over,” Cohen said. “Last year, we were paying $4,000 to $4,500 round trip. Now he’s paying more than $7,000—that’s a big differential. Then, you look at the costs when you’re over there. Hotels are more expensive. Meals. Your actual living costs have gone up.”
Gone are the days, as well, of $85 a night in top-flight hotels. “A couple hundred dollars is common,” Cohen said, but it’s a cost of doing business, even with people on the ground. “You have to go over to manage your product development teams and design work, so we fly over there.” HFB
Senior Editor Jo Fleischer contributed to this article.
October 31,
2008 by in UnCategorized
By Home Furnishings Business in on November 2008
Sourcing decisions are based on a variety of factors, including product style, availability, variety, quality and cost. What may not show up initially is the hidden cost of foreign exchange rates and how they affect the furniture market.
One thing that’s certainly not a surprise is how furniture imports into the U.S. have skyrocketed in recent years. From 1999 to 2007, total furniture imports of upholstery, case goods, metal furniture, other furniture and bedding jumped 125.5 percent, from $8.6 billion to $19.4 billion.
In contrast, exports of U.S. furniture in these five product categories grew just 37.0 percent, to $2.2 billion in 2007 from $1.6 billion in 1999.
These numbers, based on data from the U.S. Department of Commerce and the U.S. International Trade Commission, are in current dollars, reflecting the foreign currency exchange rates in effect during each period.
During those years, the U.S. dollar was losing in strength versus many of the foreign currencies from countries most used as source countries for furniture products. For instance, the U.S. dollar lost nearly 32 percent of its buying power compared with the Canadian dollar. At the end of 1999, one U.S. greenback was equal to 1.44 Canadian loonies. By the end of 2007, the greenback was equal to just 99 Canadian cents.
The European Monetary Union euro also gained buying power, as the dollar lost 31 percent of its value measured against the euro. On the other side of the coin (pun intended) were the currencies of Japan, Mexico and Taiwan, all of which declined versus the U.S. dollar in the same nine-year period.
ONE FOREIGN CURRENCY BUCKING the trend is the People’s Republic of China yuan. From 1999 to 2007, the yuan lost ground, declining 11.9 percent versus the U.S. dollar. The weak dollar certainly contributed to the sharp increase in the number of imports from China, the U.S.’s No. 1 source for imported furniture.
The yuan is unique because its exchange rate is mandated by the Chinese government, not market conditions. Once pegged to the U.S. dollar, the value of the yuan is set by what is called a “market basket” of European currencies.
The two primary destination countries for U.S. furniture exports are Canada and Mexico. While exports to Mexico increased from 1999 to 2007, more recent export totals show either marginal growth or decreases. For example, case goods exports dropped 17.1 percent from 2006 to 2007. Metal and other furniture exports were off more than 13 percent each and upholstery exports were up a bare 1 percent.
As the U.S. dollar weakened, imports became more costly to U.S. retailers and exports strengthened as U.S. vendors had goods to sell at favorable prices.
DESPITE THE BELIEF OF SOME economists that the U.S. dollar has been gaining strength in recent months, it isn’t showing up in international furniture trade, at least so far. Furniture imports for the first six months of 2008 were down significantly from the first semester of 2007. Imports of upholstery declined 9.3 percent, case good were down 7.4 percent, other furniture fell 4.9 percent and bedding imports were off 4.1 percent. Only metal furniture imports increased, up 1.0 percent from 2007 to 2008.
These results are in sharp contrast to the comparable 2006 period, when imports gained across all furniture categories. It’s most likely weakening demand due to economic softness that is causing import totals to slide, not a strengthening dollar.
While U.S. companies importing furniture are feeling the pinch as product becomes more expensive, those vendors sending goods out of the country are seeing improved prospects as the weak dollar aids in making their product attractive to other countries.
In the first six months of 2008 compared with the same period in 2007, exports of upholstery increased 10.4 percent, case goods gained 18.8 percent, metal furniture was up 19.5 percent, other furniture products increased 20.5 percent and bedding products grew 13.1 percent.
These export results sharpen the contrast between imports and exports. If exports continue at their current rate, total exports for 2008 will increase 9.7 percent over 2007 results.
On the other hand, if imports continue at the same pace for the rest of 2008, total imports of the five product categories (upholstery, case goods, metal furniture, other furniture and bedding) will fall 5.0 percent, the first year-over-year decrease in furniture imports in more than 10 years.
The U.S. economy has taken a number of hits in recent months, from the slump in the housing industry, a huge credit crunch and the failure or merger of major financial institutions. While a stronger dollar hurts exporters, it benefits importers and the consumers who buy from them. HFB
October 31,
2008 by in UnCategorized
By Home Furnishings Business in on November 2008
Peter Bjerregaard’s varied background has included jobs with shoe manufacturer Ecco and high-end electronics firm Bang & Olufsen, representing those Danish companies here in the United States. Surprisingly, Bjerregaard, who has served as president of the North American division of Ekornes since 2004, says selling furniture isn’t very different from his previous jobs.
“Ecco shoes are sold on comfort with a very strong marketing package, and Ekornes and Stressless are sold in the same way,” said Bjerregaard, with just a hint of an accent from his native Norway. “Bang & Olufsen is a high-end brand that’s sold on a design and convenience basis with, again, a very strong marketing package. So, even though the industries are different, they all put very similar mechanisms in place to make it work.”
Norway’s Ekornes, the maker of Stressless chairs and furniture, has been producing steadily rising sales in North America by focusing on a message of unrivaled comfort and patented technology. With a focus on innovation, Ekornes has remained one of Norway’s biggest furniture producers by using automation—including industrial robotics—to counter the Scandinavian country’s high manufacturing costs. The comfort message is boosted by an official recommendation from the American Chiropractic Association.
Bjerregaard sat down with Home Furnishings Business a short time before the October High Point Market to discuss how the company’s continued investments in providing training to sales associates has enabled the company to generate strong demand for its $4,000 and $5,000 chairs, even in an uncertain economy.
In light of the fact that Ekornes’ sales in North America were up 18 percent in the first half of 2008, how has Ekornes and its Stressless brand outperformed the industry to such a degree?
It’s more than just the product. I believe that, first of all, we need to find the right stores to be in, so it’s about distribution strategy. We only go after the best stores. The stores we’re in have to show the best products and have to understand that in order to (succeed) they have to sell high-quality products and they have to advertise. ... Furthermore, we spend a lot of time training the sales associates in the stores. We believe in the power of the sales associates, meaning that if you walk into a store, many times you’ll walk out with a product the sales associate has recommended. Because of that, the sales associates have to understand the concept that we’re selling, and that’s why we spend a lot of time in training. We have many, many great sales associates who are making it happen in the stores.
How aggressive are you about protecting designs to battle all the Stressless knockoffs in the marketplace?
Our mechanisms are patented and our base is patented. It’s very easy, design-wise, to copy a product by changing just a few details. But, you can’t copy the comfort, which comes from the Stressless mechanism. We do see copies coming up all over the place. Sometimes, one of our own dealers will have a chair that’s similar (and cheaper), and we don’t mind that. It’s good for the consumer to have something to compare us to. The consumer can feel the difference between a copy and one of our chairs. Right now, there’s a big chain in the Northeast that’s running a TV commercial comparing their $399 chair to one of ours. That’s fine with us, because we know that when a consumer comes into the store, they’ll feel the difference with the Stressless chair. Second of all, our dealers have sales associates explaining to consumers exactly what the differences are. So, once again, it’s back to the power of the sales associate.
What type of stores carry Stressless?
Most of our distribution is the two-store or three-store chains that are very local. That’s where we work the best. If we’re in bigger operations, we don’t always succeed as well. We started out going to Scandinavian furniture stores, which was very natural for us as a Norwegian company. But, our biggest growth area in distribution in the last two years has been traditional furniture stores.
Is it true you pay most of the expenses to bring more than 1,200 sales associates to New Jersey for training each year?
Yes. We start off (at new dealers) with the usual type of in-store training. But, we also have a school we call Level 1 that’s held either here in New Jersey or in Las Vegas. It’s really an introduction to Stressless, and it’s open to all sales associates, but we recommend that new stores wait two or three months before sending sales associates to us because that enables the sales associate to ask more qualified questions. They get more knowledge about the product because they already have some interaction with consumers. Two years ago, we also implemented a Level 2 school for the sales associates who we call “Stressless Maniacs.” They’re the ones who already know so much about the product and how to sell the chairs that we can’t really teach them much more about how to do it. So, what we do is bring them together so they’re able to share information among themselves. It’s more like a workshop where the interaction is among the “Stressless Maniacs” themselves. Our trainers are mainly keeping the discussion going.
Do you also provide training to delivery and repair associates?
Yes. We created a repair and assembly school. In this industry, we tend to forget the post-sales element when we’ve sold the product, but when a consumer buys a $4,000 or $5,000 sofa or a $16,000 sectional, the smallest issue can become a big problem if it’s not dealt with correctly. So, we bring those repair and assembly associates here to New Jersey, and our product specialist provides training. At the same time, the repair and delivery guys will bring up issues they’ve seen in the field, and they’ll be taught how to deal with them in as smooth a way as possible. The worst thing that can happen when there’s a problem is that somebody comes out who doesn’t seem to know what they’re doing. When the furniture arrives at your home, you want a smooth process that confirms that you made the right decision.
Tell me about your advertising, especially the Stressless infomercials.
About two years ago, we started using infomercials to educate the consumers. We run them at the traditional time, which is about 5 o’clock in the morning. Of course, NordicTrak were the ones who really started running infomercials about 20 years ago to educate consumers, provide a lot of product information and reasons to buy. Tempur-Pedic is another company that has done this very successfully. We’ve expanded (recently) to run a one-minute or two-minute version on CNN and Fox News, and the ads have increased traffic for our dealers. We track the results carefully with everything we do. When the infomercials run, the hits on our Web site go up. From the dealer locator on our Web site, we can monitor where these consumers are looking for dealers. ... That allows us to fill gaps in our distribution, and we can also tell a dealer, “There were 500 consumers looking for a Stressless store in your town in the last six months, which means you need to advertise more to tell people in your area about Stressless in order to get more of those potential sales.”
How important are point-of-purchase displays in selling your chairs?
We have the same approach all over the world with what we call our Comfort Zone (display). It’s a dedicated area that has educational materials for the consumer. There is a skeleton of chair, so they can see exactly how the chair moves and the mechanisms work. There will also be a DVD running showing the factory and the concept, along with all the leathers and selling tools the associates need. What we’ve found is that if we go into a store that doesn’t have enough people to cover the floor—and that’s usually in a big box store—we aren’t successful. We have to have an educated and committed sales associate working with the consumer to fit them into the right chair and fit them into the right sofa. We have different sizes of chairs in the Comfort Zone, and finding the right one depends on your body size, whether you have a long torso or a short one. To give you an example of the power of the salespeople, we run a promotion in July and August where we offer one of our chairs at $995, which is very unusual for us. In analyzing our sales, we found that the people who bought the $995 chair were new consumers for us. At the same time, sales of more expensive chairs increase dramatically during the same period, which tells us that once the salespeople directs the consumer to exactly the right chair, they’ll buy it, even when it costs $1,500 more than the chair in the special offer we’re running.
In a year as difficult as this one has been, how will sales be affected?
We believe in the concept we have and the path we’re on. It’s a long-term strategy. We’re sticking with the dealers we have and we’re not lowering our targets for (more) distribution with lower-quality dealers. What we’re doing right now is more of everything—more advertising, more infomercials and providing dealers with more tools to make all this happen. That’s our response to the downturn right now. We’re strong believers in what we’re doing. HFB