Upholstery squeeze
Promotional mfrs. face cost increases, margin pressures
By Gary Evans -- Furniture Today, February 17, 2003
Tupelo, Miss. — With the cost of materials rising and retailers clamoring for higher margins, promotional upholstery makers are being squeezed tighter than a rusted bolt, but hope a strong market here this week will help ease the pressure.
Led by sharp hikes in chemicals used to make foam, many manufacturers have seen materials costs rise 10% or more. While that also affects the middle and upper-priced segments, there is less maneuvering room for producers of $299 sofas.
Raising the price of finished goods doesn't sit well with their retailers.
"The major dealers out there will beat you to death on price so they can hit their margins," said Hamp Hughes, president of Rose Hill Furniture.
Foam and fiber prices have increased 7% to 10% for Mississippi-based Rose Hill. To recoup the loss, Rose Hill took on a national sales force at the October market.
"That's something we've never done," Hughes said. "Ninety percent of our business over the last 30 years has been to the majors. So we're trying to offset the lower margins we're getting selling to the bigger guys by selling the smaller retailers. It seems to be working now, working real well."
The company also is able to absorb the rise in some costs by seeking reductions in others. "Unfortunately, we've had to go with imports," said Hughes. "For $5 cloth we used two years ago, we're now looking at $3.50."
In addition, imported occasional pieces help balance margins when combined in a living room package.
Rising chemical and polyester prices are squeezing the margins of the $199 to $399 retail price points of another Mississippi company, Sit-n-Ez Furniture. President Billy Lansdell said the increases are hard to pass on to customers.
"For us to go up $10 on a suite, it's like pulling teeth," he said. "Dealers make up their minds how much they're going to pay, and when they reach that point, that's it."
Sit-n-Ez has been able to blunt increases with imported fabrics, and stable business in the promotional sector also has helped. "But right now what's helped us is that there aren't as many (manufacturers) as there were last year," said Lansdell. "That's what's keeping us afloat right now.
"It helps us when we lose a competitor," he said. "I hate to say it that way. It helps us more when we do have competitors because it means the economy is better."
American Furniture plans to remain true to it retail price structure of $299 to $499, despite rising costs, said President Gerald Washington.
"Prices are going up but we still manage to cut back on labor or something to offset it," he said.
American won't run price promotions in Tupelo, instead using its quick-ship program to draw retail commitments. "If we get the order by 2 p.m., we could put it on the truck and leave tonight with it," Washington said.
While some producers are turning to imports, American prefers domestic suppliers, even for fabrics. "I can go to Quaker or Microfibres or Culp and get goods in a week if I need them," he said. "If I go to China, I have to wait 90 days. My customer has moved on down the river by then."
American partners with a small core of suppliers. "If you don't have suppliers busting their tails to get you the goods, you're out of luck," Washington said.
At upholstery producer United, President Larry George said one way to circumvent price increases is to introduce new product.
"You try to give dealers a little bit of a different look and get those margins back in," he said. "You change out some old things that have been in the line for a while. That's why were coming out with several new products in all our division (in Tupelo)."
United tries to "fight off" increases when it can, and "we pass them on (to retailers) when we absolutely have to," George said. Stores sell upholstery at margins typically between 44% to 48%, he said, adding, "A lot of manufacturers wish they could work on 10% or 11%."
Cost pressures also affect upholstery manufacturers who pick up above the $499 price point.
"Every day you get a little price increase on a component here, a component there," said LaCross President Chris Podschun. "It's a little deal but it's there. And in our industry we have two times a year, in a sense, to raise prices. Yet how do you do it when everybody wants to hold prices?
"The only way you can do it is through efficiencies in your plant," he continued. "We're no different than the telecom industry or anybody else. We've got computer cutting machines. We try to reduce our SKUs so we can get better cuts. We try to be more efficient in the factory, but we're so labor intensive that it's tough."
President Wilbur Hughes said Hughes Furniture has "tightened everything up" to offset rising costs. "You can switch suppliers and find someone who needs the business more," but basically "there's not much of a way to keep margins," he said. To be successful, "you've got to be a magician."
Harvey Bailey, sales manager for midpriced producer Style-Line Furniture, said of price hikes: "We just have to find more creative ways to merchandise our line through fabrics and materials that make up the components of the frame. We have to take a look at our waste to make sure everything is efficient and cost effective.
"Basically, we keep getting increases on materials, and it's our job to keep the prices where they've been for years."
