Retailers hope 2005 presents fewer obstacles, more promise
By Clint Engel -- Furniture Today, December 26, 2004
High Point — Furniture retailers are entering 2005 with a lot going for them — or rather a lot behind them.
The presidential election, and all the concerns and uncertainty that come before it, has passed. The final assessment on Chinese bedroom antidumping duties has come down and, by most reports, the duties are livable. The economy has picked up a bit. Hurricane season is over. Things are looking bright, right?
Retailers contacted for this report offered up a resounding "maybe." Every new opportunity seems to be countered by a new or worsening challenge.
Jerry Epperson, industry analyst and managing director of Richmond, Va.-based Mann, Armistead & Epperson, notes that government numbers suggest retailers already should be feeling a bounce this year.
"But almost every day we talk to a retailer who tells us business is OK, but it's still not where they feel it is healthy, and they have to work very hard for every sale," he says.
"Hopefully, now that the election has passed and the uncertainty over tariffs is over, we can take a few less Tums."
Jeff Seaman, CEO of Seffner, Fla.-based Rooms To Go, projects business will end up "slightly positive for (2004)," which is saying something, considering the havoc wreaked on this and other Florida retailers by four hurricanes. RTG estimates the storms wiped away $25 million in sales.
But business has been better since the November elections, Seaman says. In addition, the stock market is up, and if that trend continues, Seaman believes sales stand a good chance of moving in the same direction.
But a lot of "ifs" make it difficult to project what might happen to sales in 2005.
"I'd say (business will be average) next year," he says, "not negative, but there are so many outside events that affect business today. It's so hard to get a feel for it."
World events, for instance, and how the war unfolds in Iraq, Seaman said, are two factors that "have a bearing on consumer confidence, which has an effect on business."
At Englewood, Colo.-based American Furniture Warehouse, sales this year are expected to come in 7% to 8% ahead of last year, a "good year for us," said President Jake Jabs, who anticipates another good year in 2005.
Everything Jabs says he is hearing these days points to good times ahead in Colorado, which, he adds, often runs counter to the nation in general. Colorado is in the midst of a building boom — both commercial and residential — and the furniture industry should thrive on the activity. Indeed, American is participating in the boom with its own plans for two new-concept stores opening in Colorado Springs and on Firestone, Colo., as the retailer pushes out from its Denver-area stronghold.
Jabs, like many others, believes the final antidumping margins of 8.64% for most Chinese bedroom factories shipping to the United States is a positive, and when the ruling came down in November, he breathed a sigh of relief.
"A lot of us were worried partly because of the (triple-digit) numbers they threw around. It could have killed us," he said.
While some have said that antidumping is a legal issue and apolitical, Jabs suggests politics does have an impact. On the other hand, now that the election cycle is over, he contends, there's no need to play politics.
"Now they can be statesmen instead of politicians," he says. "I don't think the duties will go up anymore. It's a positive for the furniture industry. It gives us all a more relaxed, confident feeling. We're not having to sit around worrying about high duties."
That's not to suggest Jabs thinks all furniture stores will have it made next year. Jabs says there are other challenges looming, particularly from growing alternative channels of distribution. Costco, Linens 'N Things, Lowe's, Home Depot — they all have buyers traveling to Asia now and coming across the same furniture bargains that conventional furniture retailers see. They may be going over for other categories, but they're coming back with furniture, he says. It began as a test, but now they're successfully selling more and more of it in their stores.
"That's going to cut into the furniture (store) business," Jabs says. In fact, he contends that in some markets, these new furniture players are dominating certain categories, such as jewelry armoires and bombe chests. And more and more consumers are buying that way — by the piece.
Jabs believes he's protected from this new onslaught largely because American already buys directly from Asian suppliers. The retailer also has invested heavily in backend operations so it can win with lower prices, thin margins and lots of volume.
"But they have the advantage over the mom-and-pop stores — and even some big regional chains with stores that are too small and don't want to monkey around with doorbuster-type items," he says. Those furniture stores are giving away business to the alternative channels, he said.
To compete, Jabs suggests that smaller businesses shift gears and consider niches, such as manufacturer-dedicated store programs with controlled distribution. Otherwise, they need to dive headfirst into the direct-container business and sharpen their margins.
Schneiderman's Furniture is one of those independents that is deep into imports, where it continues to see great values despite antidumping duties. With its largest store just opened in Plymouth, Minn., and another on tap for early next year, the eight-store Twin Cities retailer, based in Lakeville, Minn., is expecting a healthy increase in business next year, although not record results.
The family-run business faces the same obstacles as many others — rising pressure on operating costs.
"Health insurance is absolutely killing us," said Larry Schneiderman, who co-owns the business with his brother Russell. "We've done everything we can to try to keep that under control," including shifting more of the burden to employees and higher deductibles.
But Schneiderman says these are "Band-aids" and notes costs continue to rise by the thousands of dollars.
Schneiderman's also struggles with rising workers' compensation costs, and even though the economy has been sluggish, Schneiderman says it remains difficult to find and retain quality people.
"It seems fewer young people are enthralled with working weekends," he said. "And in Minnesota, there are other overhead issues. Property taxes are already high and there are no signs of them lowering.
"Where you can, you need to look at your gross margins and look at operating costs to keep them as lean as you can," he added. "But when you add the costs due to fuel and freight increases ... it's very hard to keep up. Having a satisfactory bottom line is more of a challenge than it's ever been in my business career."
That said, Epperson says the housing market is pointing to opportunities for incremental sales, at least for some retailers in certain areas of the country. Among them:
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Immigration. The immigrating population is the wealthiest this country has ever seen, Epperson said. "One of the reasons so many come here is to live our lifestyle. They would like to own our cars, have our homes and own our furniture," Retailers should look to hone their marketing to this group where appropriate.
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Migration. Epperson says the nation is seeing a huge reversal of the last 200 years as people migrate from North to South to retire or in search of jobs, and Southern communities will continue to feed on this. Some consumers are using the dollars from home sales towards the purchase of even larger homes for the same price to protect the capital gains from taxes. Bigger homes need for more furniture.
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Vacation homeowners. Since they're not full-time residents, they may be difficult to reach. "You have to be creative in going after them," Epperson said.
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Young shoppers. "Our children are buying homes for the first time ... and most of us who are my age and running furniture stores really need to rethink how we're going to reach out, adapt and promote our stores to a whole new generation."
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