The Asian connection

'Pure play' importers provide vital sales, distribution link between Asian producers and U.S. retailers hungry for sharp values

By Thomas Russell -- Furniture Today, March 7, 2004

Signs of the global economy are everywhere. They're in the shirts Americans buy that are made in Malaysia, the cars imported from Japan and the toys bought at Christmastime with the label that says, "Made in China."

Now, more than ever, the signs also are quite evident in furniture — in the beds consumers sleep on, the dining room tables where families gather for Thanksgiving meals and the occasional tables in living rooms from coast to coast.

Imported furniture is not a new phenomenon, of course. Companies like Pier 1 Imports and The Bombay Co. have sold it for years.

The difference now is that more and more American consumers are demanding imports because they represent products and styles once only available to the wealthy.

Thanks to low labor rates, Asian producers can make furniture at a fraction of the cost of their American counterparts. The trend is particularly noticeable in China, which in 2002 alone shipped $5.7 billion in home furnishings to the United States, up from $4.2 billion the year before and $1.8 billion in 1998.

The $5.7 billion represented 40% of the total $14.4 billion in furniture shipped to the United States in 2002. At $3.6 billion, China's share edged up in the first six months of 2003, representing nearly 46% of total imports, according to U.S. government figures.

Those figures include shipments from domestic manufacturers such as Hooker, Pulaski, Lane and Thomasville that import goods.

But they also include business from "pure play" importers, a group that represents an increasingly significant part of the home furnishings business. These are companies whose main purpose it is to design, market and help distribute imported products exclusively for U.S. consumers. While they do some light assembly and finishing, they are not manufacturers in the same classic sense of companies such as Thomasville.

The "pure play" importers include top industry names like Universal Furniture, HomElegance, Lifestyle Enterprise, Magnussen Home and Legacy Classic Furniture, to name a few.

Hundreds of other smaller players also exist, adding to the financial clout of this industry segment.

Evolving capabilities

Take solid-wood case goods importer A-America, originally known as Asia-America. The company formed in 1973, importing ceramics and hand-crafted items from Vietnam.

After the fall of Saigon in 1975, the company left the country and started over from scratch, importing antique reproductions and oak furniture from Taiwan.

The company's goal is perhaps a mantra for others that emerged either before or since then: "Offer the best value and quality possible, and give our dealers — service, service ... and more service."

Eventually, it began sourcing goods from other countries such as China. The Chinese furniture business, in particular, blossomed during the mid-1990s, causing more and more importers to seek opportunity there.

"The development of the Chinese furniture industry was spearheaded by the Taiwanese," said Fred Rohrbach, A-America's founder. "They had the know-how, the machinery and the capital. All they had to do was change to new production facilities with cheaper labor."

The local Chinese began to emulate the Taiwanese and then to compete with them, Rohrbach added. "Now you have many good-sized furniture factories in China that are owned by mainland Chinese firms."

A-America also sources product from Indonesia, Thailand, Malaysia and Vietnam. Other importers have since followed, creating a new world of sourcing possibilities throughout Asia.

In 2002, the biggest Asian sources of home furnishings to the United States outside of China were Taiwan, Indonesia, Malaysia, Thailand, the Philippines, Vietnam, Hong Kong, Korea and India.

Combined, these nine countries shipped $2.3 billion worth of furniture in 2002, or 16% of the total that year. That's up from $2.0 billion in furniture shipments to the United States in 1998.

Five of those countries were among the Top 10 importers of household furniture to the United States in 2002.

Building strong relationships

At the onset, the formula sounds simple. Find sourcing partners in low-cost countries, send them your designs and have the plants produce your product and ship it to the United States.

But as Rohrbach and others can attest, it's not that easy. Often, developing relationships and finding good sourcing partners to produce the quality customers demand takes years. That's especially true when so many domestic manufacturers and other importers share some of the same factories.

"You really need to know what the factories' strengths and weaknesses are and know that the people who own the factories are behind this project, too," said Matthew Baerg, president of case goods importer Containers 2 Go. "The factories may be very large, and you need to sell the factory on the importance of the project and make sure they oversee it so it is completed properly.

"You also have to be very clear up front, and make sure the factory is making money. It is all about long-term relationships."

Dan Angus, senior vice president of sales and marketing for casual dining and occasional importer Ligo Products, says the importance of such communication and relationship-building can't be overstated.

"Our objective is to side with the best agents that we can in dealing with the factories," Angus said. "We are picky about the factories we buy from and, therefore, make sure the agent we pick is on good terms with the factory. Once that is established, it allows us to get a good flow and good quality of product and get what we pay for."

Companies such as Legacy Classic and Universal have an advantage in that their parent company Lacquer Craft owns and operates its own plants. That gives Legacy Classic and Universal greater control over the availability and flow of their goods.

One of those plants, which opened in December in the Shanghai area, also has an adjoining warehouse space that can store up to 2,500 containers. The warehouse space will allow the company to stock a wide variety of goods for immediate shipping.

"This will move us up to a whole new level of service," said Legacy Classic President Kevin O'Connor, who noted the new warehouse allows the company to ship mixed containers from a 'stocking position.'

"The issue of doing business in the Far East is not 'can you sell the goods,' it is 'can you get it?' We have addressed that problem by having an enormous new facility with the capacity to service our business."

Importers without such stocking capacity can be at a disadvantage because their order time factors in manufacturing time. In many cases, product can take 12 weeks or longer to get into the customers' hands.

Logistical challenges

"I think it's certainly added to the complexity of the furniture industry," said Ken Smith, a long-time industry analyst and director of furniture industry services for BDO Seidman in High Point.

"It has created lower prices, but it also has created lots of issues with respect to the ability to get product in an efficient manner," said Smith. "It has added complexity, just having to deal with someone across the globe and in different time zones."

However, direct-container shipments, whether from a warehouse or from a plant, can lower product costs 20%-25% if not more. Because of the cost savings, many more retailers, particularly retailers in the Top 100, are going that route, ordering full containers of bedroom and dining room sets.

Not every retailer sees the benefit of importing. Some, particularly those who are short on inventory space, have problems with the logistics. Hence, they can't order in bulk like the big name, multi-market stores.

Still, some find a balance. That includes Great Lakes Interiors, a Holland, Mich.-based retailer that imports about 30% of its line. Some of that comes via direct containers and some comes from domestic warehouses.

When it first started selling imported products several years back, Great Lakes' sales staff was concerned about quality. But that concern has diminished, and many of its imported products are selling well.

Last year, for instance, imports helped bolster its case goods sales by about 12% over 2002.

"We can attribute that to imports," said Tracy Hines, store merchandise manager.

With much of its business in special orders, Hines said imports have presented some inventory challenges. In addition, there have been some negative service issues, but he attributes that to the higher volume of imports coming into his store these days more than anything else.

Overall, he said the availability of imports has been good for customers because of the diverse styles and affordable prices.

"Consumers get a lot more bang for their buck," he said. "They get a much more fashion-oriented piece of furniture than they were able to before without spending a lot of money.

"We all want what's in that magazine picture, and imports are allowing the consumer to have that."

BDO Seidman's Smith noted that quality was originally an issue with imports. But he has seen the level of quality improve.

"I don't think there is any question, it has gotten better," he said. "Is it perfect yet? Probably not. But it definitely has gotten better."

Bill Fenn, chairman emeritus of the N.C. Furnishings Export Council and a former chairman of LADD Furniture, agreed that imports present many challenges, particularly from a distribution standpoint.

That could get more complicated as container shipping costs continue to rise. Along with exporting product to the United States, he noted that China imports a great deal of American wood.

Because China's infrastructure is still developing, that could remain a costly factor that could ultimately raise the price of finished products.

"That will get better over time, but it is a slow, laborious process," Fenn said.

The prevalence of importers also has had a negative effect on U.S. manufacturers. According to the American Furniture Manufacturers Assn., the furniture industry lost 47,000 jobs alone between 2000 and 2003.

But Fenn noted that loss mirrors the natural shift in production jobs that has taken place over the years as manufacturers seek lower labor costs.

Overall, he believes that importers have contributed to the furniture industry in a major way — by expanding distribution to many different retailers and consumers alike.

"In opening up distribution, they have made it much broader than it used to be," he said. "They (importers) can bring in more patterns than we used to. We used to tie up a pattern with one or two retailers in a market and that's all we used to sell.

"They bring in so much merchandise, that it means the consumer gets a tremendous value," he added. "Even with domestic products it's kept the prices down pretty substantially. It's great for the consumer."