As business recovers, expect to see shortages
Jerry Epperson -- Furniture Today, May 25, 2009
Shortages … remember the word? As odd as it sounds, we are beginning to see some shortages, perhaps more accurately described as inventory imbalances.
When retail sales began their historic freefall last autumn, obviously we could not ask the ships on the sea to U-turn, nor could we ask the factories to not finish their work-in-progress, so warehouses and parking lots here in the United States filled with lots of containers. Slowly, we have been absorbing these inventories, some at full price. (But not many!)
The most recent High Point Market had a lot of new introductions, many with truly new styles, finishes, scale and function as opposed to the retreads of old styles that have been so typical in recent years. (No, I will not mention Louis Philippe again.) This is important. American consumers can come into our stores this autumn and see some new stuff, not more of the same.
But business at retail has stabilized, or at least stopped the freefall, so demand for our new in-line furniture may exceed what had been ordered three to five months ago, leaving us with shortages in some cases.
According to BusinessWeek's April 13 issue, 300,000 factories closed in China last year. Not all produced furniture, but we had more than our fair share. While there is still plenty of capacity to make furniture, factory shutdowns have caused importers to find new sources, sometimes with higher prices or with different manufacturing schedules and quality levels, further complicating deliveries.
Speaking of prices, the global recession has created chaos in the shipping industry. More than 500 massive oceangoing container ships are now idled around the world, reducing capacity 12% to 15%. Ships cannot cross half-full, so container prices have dropped.
While this allows incrementally lower prices on case goods, the more dramatic impact may be on imported fabric upholstery. Until recently, freight cost $100+ to import a typical sofa from Asia, a large increment to the $250-$500 cost to meet our promotional retail price points of $499 to $999. Today, freight costs are about half what they were a year ago, and this may be enough to accelerate these imports.
Using our methodology, 30.8% of our upholstery was imported in 2008, two-thirds of which came from Asia. In wood furniture, 68.3% was imported. These numbers exclude component parts, but include leather and fabric.
Just as the new furniture sourcing model does not allow us to slow quickly, as business recovers, it will take time to rev up our sources.
But being worried about having enough furniture to meet demand is a nice problem to have, relative to others.
