Analysts agree, disagree on key issues facing industry
By Brian Carroll -- Furniture Today, December 16, 2001
KEY BISCAYNE, Fla. — The recession will end on March 11 and there will be little domestic furniture production remaining by the time the shift to offshore sourcing has finished, sometime in the next 15 years.
Those were two of the bolder predictions from a panel of industry analysts at Furniture/Today's Leadership Conference here — predictions for which there was little agreement. Importing, the Internet and the punishing economic conditions furniture makers and sellers face were among the themes of the three-day conference.
Jerry Epperson, managing partner at Mann, Armistead & Epperson, described evidence of a turnaround in several consumer goods categories, encouraging him to forecast an end to the recession in the second quarter, jokingly pinning it precisely to March 11. "But we won't feel it until the third quarter," he said.
BB&T Capital Markets' analyst Joel Havard agreed in principle with Epperson, saying some positive quarterly numbers compared to last year for retailers such as Williams-Sonoma and La-Z-Boy "indicate that business is turning in a positive fashion."
Because of the Sept. 11 attacks and what many are calling a return to the home and entertaining in the home, the furniture industry likely will be one of the first industries to enjoy an economic rebound, Epperson said. That would be an anomaly, since historically furniture is among the last industries to cash in on a turnaround.
"Snack foods — something I monitor very carefully — are up 19%," he said. "Sales of fire logs are up 24%. It shows people are cocooning."
Margaret Whelan, associate director at UBS Warburg Equity Research, was not as upbeat. Unemployment numbers still are very high, and retailers have discounted so much that Whelan predicts pent-up demand far below "what people perhaps think," she said. She predicts a bounce in the economy in 2002's third quarter.
Whelan also disagreed with Epperson and Havard on what will become of U.S. furniture manufacturers. With labor just 10% of total manufacturing costs overseas compared to 30% in the United States, and with far less concern for the environment among Chinese factories, the future for domestic producers is dim.
"Manufacturers are getting a lot smarter in Asia," she said. "They are getting the machinery they need, they are getting more efficient. They aren't just talking about capacity and sales any more."
Havard pointed to the consumer electronics and auto industries, noting that although offshore production has reshaped both, domestic producers remain in the game. The same will be true in furniture, he said. The difficulty is defining which niches will be viable.
Epperson said parts of the furniture industry always will remain in America, citing Leader-of-the-Year winner John D. Bassett III and Vaughan-Bassett as a likely domestic survivor.
"The problem is defining 'made in America,'" Epperson said. "It's a wonderful idea, but who doesn't source at least components?"
With LifeStyle Furnishings International announcing agreements to sell six of its companies the week of the conference, the analysts tried to put the deals in context. Again, their views diverged. Whelan was dismayed that in buying Henredon and Drexel Heritage, Furniture Brands International would acquire furniture factories it knows it will soon shutter.
"It's contradictory," she said. "Synergies really haven't been achieved through acquisition. Definitely, LFI management wasn't doing a good job with those companies."
Epperson, however, saw three more opportunities for Furniture Brands to "work some of their (brand) magic. Henredon is a profitable company. Maitland-Smith is profitable. Drexel Heritage is a brand with high recognition that has probably been underutilized for a while. It's an opportunity for FBI to take these assets and leverage them."
| Analysts Joel Havard, left, Margaret Whelan and Jerry Epperson make bold predictions about industry's future. |
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