Three years of deflation likely to end this year
Jerry Epperson -- Furniture Today, April 4, 2004
The residential furniture industry has endured three years of deflation. We say "endured" because so few people have experienced deflation before that, as an industry, we were ill prepared.
For example, we have preferred our warehouses relatively full as a hedge against higher prices and broken promises. Yards full of lumber also used to be the norm as a hedge by wood furniture makers against spikes in prices or problems with availability. Over the past three years, most have cut inventories because, in a deflationary economy, you can buy tomorrow cheaper than you can today.
It looks like 2004 we will see a return to inflation.
Natuzzi has announced a 5% price increase on its Natuzzi-branded furniture sold in the United States and Canada. The hike doesn't affect its Italsofa line made in Brazil and China.
The U.S. dollar has weakened at least 25% in the past two years against the euro, so Natuzzi's Italian-made line has been under pressure.
This is just the beginning. Steel prices are up 20% or more and are being passed along in upholstery and bedding with higher spring and mechanism prices. Sealy recently announced a 6% increase.
But that's not all. I drive a Chevrolet Suburban and I just spent $75 to fill it up with gas. Yes, it was nearly empty and holds 42 gallons, but $75 still gets your attention. Higher petroleum prices will certainly affect many of our raw materials, including foam, fabrics and finishing materials.
In bedding, you also have the impending California flammability regulations. All these elements could add up to $100 to $150 higher retail prices for an average bedding set, now about $700, and this certainly will redefine bedding prices in California, and eventually in other parts of the country.
Everyone also will be facing higher transportation costs, whether by ship, rail or truck.
Unless you have been on sabbatical in Antarctica, you are aware of the potential tariffs on Chinese-made bedroom furniture, which could be in place as early as April 28 on a preliminary basis. Other "actionable" dates are July 12, Aug. 26 and Sept. 2.
Of course, the government could decide that no tariffs are warranted. The latest rumors say the tariffs will range from 7% to 40% but we doubt anyone really knows yet.
So far, we are speaking of increases in costs that may not be fully recoverable due to the highly competitive nature of our industry. Expect to hear more at the April market about price increases, or, as we usually do, price "changes" with product introductions.
Opinion columns are available online atwww.furnituretoday.com .
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