U.S. case goods in survival fight
25,000 U.S. factory jobs disappear in 2001
By Powell Slaughter -- Furniture Today, February 3, 2002
HIGH POINT — HIGH POINT — It's no news that imported furniture continues to eat away at domestic case goods production, but 2001 saw a startling drop in the number of U.S. workers and plant space involved in the manufacture of furniture.
According to preliminary reports from the Bureau of Labor Statistics, residential furniture factory employment fell by 25,000 or 10.2% last year, from 244,600 people in January to an estimated 219,600 in November.
Case goods has taken the hardest hit. Plants closings at Ethan Allen, Furniture Brands International and former LifeStyle Furnishings International companies alone approached 6 million square feet, with job losses of nearly 3,500.
Stanley announced in December that it would close a 500,000-square-foot plant in North Carolina, eliminating 400 jobs. And already this year, Drexel Heritage said it will close its 250,000-square-foot Drexel, N.C., plant, and Lexington said it will mothball a 600,000-square-foot North Carolina factory .
Improvements in logistics and tighter quality control in Asia are making it easier for some companies with longstanding commitment to domestic manufacturing to blend importing into their operations.
That has made it harder for U.S. manufacturers to keep all their production at home, especially in an industry with a tradition of chasing low labor costs. Plant workers in the Carolinas and Virginia, especially, are feeling the same impact as their counterparts in the Midwest and Northeast did in the early and mid-20th century, when manufacturing migrated to the lower-wage South.
With the furniture industry achieving record sales from 1997 to the second half of 2000, the effect of imports on domestic capacity wasn't much of an issue, said Jerry Epperson, industry analyst and managing director of Mann, Armistead & Epperson.
"Imports were growing all that time, but as long as domestic plants were running full out, it wasn't such a screaming problem," he said. "Retail sales began to drop, and then it was 'those damn imports.' "
Mann, Armistead & Epperson estimates that 42% of wood product sold in the United States in 2001 was imported. The sheer amount of new plant space coming on line in China will only add to the imbalance.
"We have built fewer new case goods plants here in the past 30 years than the Chinese have built in the past few months," Epperson said. "A lot of U.S. companies are trying to increase their efficiency in very old plants."
The good news for domestic producers is that furniture sales won't stay weak forever.
"There's a tendency when times are bad to think that they'll always be this way," he said. "I think as we see business improve, we'll see more demand for domestic product. It won't take that much of an upturn to make domestic manufacturers healthy again."
While furniture importing has been around to some extent as long as the U.S. industry itself, China's rise as a source has convinced companies like Pulaski and Lane to abandon their domestic case goods production altogether.
With retailers driving for better pricing and an American consumer who has products from all over the world in her home, there's little pressure on the demand side to produce domestically, despite the wave of patriotism in the wake of the terrorist attacks.
While La-Z-Boy still makes most of its case goods in the United States, for instance, it's tough to turn away from the values found in Asia, said Don Mitchell, president of La-Z-Boy case goods.
"Unless you're a niche player, it's hard to make everything here," he said. "What China has done is revolutionize the product style of furniture. Twenty years ago the furniture they're sending here would have cost a fortune. They've made it almost a commodity and upped the level of how furniture looks at lower prices."
Mitchell said his pricing from China has dropped 17% since 1990.
China continues to turn up the heat, especially on manufacturers at meat-and-potatoes price points, with huge plants that rely on state-of-the-art equipment that gives a competitive boost to existing labor-cost advantages. As a result, some of the biggest growth there will be in looks emphasizing surface and shape — a style direction some U.S. manufacturers seized on in recent years to distinguish themselves from the hand carving pouring out of Asia.
"It's happening very quickly," said Margaret Whelan, associate director of UBS Warburg Equity Research, who has taken two extensive trips to China to examine its furniture manufacturing capabilities.
"The new plants we saw were terrific," she said. "The Markor plant, Larry Moh's new plant for Fine Furniture (Design & Marketing) — they're extremely efficient."
Major retailers are helping drive the move to overseas sourcing with their own direct-ship programs. Whelan pointed to retailers such as Havertys and Rooms To Go, which have built strong store brands at bread-and-butter price levels.
"The Havertys brand is more than 25% of the product on their floors," Whelan said. "They can source that on their own overseas."
With so much U.S. manufacturing shutting down and countries like China on the rise, some worry that Asian sources will start bumping up their pricing once they reach a critical mass of the U.S. market.
But with Chinese manufacturers competing among themselves — not to mention up-and-comers like Vietnam — significant price hikes aren't likely any time soon.
"So much more capacity has come and is coming on line that you won't see pricing pressure upwards over there for at least the next three to five years," Mitchell noted.
There is only so much U.S. manufacturers can do to hold onto production. Mitchell said that if container prices escalate, imports could slow. But at middle price points in particular, more and more case goods will float to America.
"If you're a low-low cost manufacturer, I think you can hang in, and there's also a level at either end of the price scale the Chinese don't want to participate in," Mitchell said. "Or you have to be a niche player and be somewhat unusual in product, but that advantage doesn't last long in this industry. You must have really unique marketing."
Proximity to market is a key advantage for American manufacturers, said consultant Lee Houston, but only if they run a tight ship and get product to customers with timeliness and efficiency.
Houston, a former manufacturing executive with Ladd Furniture, said that too many furniture producers allocate their resources without a clear view of the results on their business.
He described one company, where special sales managed by an employee making $35,000 a year account for 11% of company revenues, while the High Point market generates 20% to 25% of sales and costs the company $250,000.
Furniture executives often are wary of outsiders, but Houston provided an example of a Texas case goods company that benefited from a fresh approach.
The executives of the company, which Houston declined to name since it was a client, came from the textile industry and boosted sales from $4 million in 1996 to $22 million last year.
"They had rethought everything in that company," Houston said. "They have one week of in-process inventory out of a 300,000-square-foot factory, and a line of 750 SKUs. Seventy items account for 50% of sales. That's not uncommon at middle price points, all Oldsmobiles, no Cadillacs.
"I was the first woodworker to come in there, and thank God I was the last. I never would have had the freedom of thought, coming in from the industry, to change the way they did."
| Along with broadening its line through expansion into alder through the Alder Rose collection, Oakwood Interiors is taking advantage of its investment in sophisticated equipment to achieve carvings of considerable depth without hand labor. |
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| California manufacturer Blackhawk has priced its Vineyards platform bed at $399 retail to drive business to the U.S.-made collection. |
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