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Leather sources look for uptick in business

By Joan Gunin -- Furniture Today, December 26, 2004

High Point — After a year of facing such challenges as the U.S. elections, the Iraq war and the emergence of the Las Vegas market, compounded by an out-of-kilter euro and a stronger Canadian dollar, the leather upholstery industry can only look forward to a brighter year in 2005.

While Asian production remains vigorous as more companies enlist offshore capabilities, several executives lamented leather's lackluster performance in 2004. It was neither the best nor the worst of times; an unenthusiastic "eh" was the general consensus.

The leather category, which has shown stellar growth for many years, can't be all that much in the doldrums. Witness the number of new players, including Excelsior Designs' Casa Novalia Leather, Fine Leather from Fine Furniture Design & Marketing, Universal Leather, Largo Leather and Maxdivani.

But change, as always, is constant.

In a bold step, Italian leather upholstery maker Soft Line this fall took on Chinese pricing with a collection of sharply priced Italian-made sofas. The company augmented its $999 better seating line with a container-only stationary program eyeing retails of $599 to $899.

This fall, Natuzzi launched its first independently owned store in the United States, an 11,000-square-foot freestanding unit in Dallas, and also upgraded its gallery programs with redesigned formats. Furnitureland South in Jamestown, N.C., sports the first, an 8,300-square-foot installation incorporating lifestyle settings for a total look.

More recently, Caliailtalia and Italian Leather Seating scrapped their joint U.S. marketing/distribution agreement after three years. Calia will venture out on its own again, while ILS will seek to add other producers to its stable.

Both companies will continue marketing in the United States following organizational tweaks. "Nothing really changes for Italian Leather Seating," said Dennis Kramer, who continues as ILS' vice president of sales and marketing.

Meanwhile, DeCoro disclosed its intention to make a public offering in Hong Kong as early as June. The Chinese-based, seven-year-old, Italian-owned leather upholstery manufacturer views the move as its next step in growth and profitability.

DeCoro expects a 20% sales increase for 2004, but Executive Vice President Larry Crink said, "Current business conditions seem to be very difficult. While market commitments have been exceptional, retailers are not looking for delivery until February or later.

"We have stayed very aggressive in offering special promotional packages to combat other leather competitors," Crink continued. "Leather and microfiber are still an important part of whatever is happening in the upholstery industry. I have not heard of any business conditions improving but I am optimistically preparing for 2005."

Steve Bailey, vice president of marketing and sales for Schillig USA, said 2004 would go down as "a good year, not a great year for us. It's been very up and down. There is no consistency to it. With production requirements, that creates a difficult situation. We like production to be nice and smooth but that wasn't the case this year."

Schillig is developing strategies to "do business in a financially attractive way," he said. "We're looking to make money with a euro that's killing us (up almost 40% in two years), as well as to expand our customer base. We're taking internal measures as well. What we've asked customers to do, we did ourselves as well."

For some relief, Schillig looks to its Asian production.

"We have not had trouble with containers or shipping so far, and we have an excellent relationship with our plant there," Bailey said. "I'm looking forward to 2005."

Natuzzi Americas, also heavily dependent on the euro, hopes the U.S. dollar's slide vis-à-vis the euro will come to a halt in 2005, but sees no significant change occurring in the first six months.

"It's been challenging," said John Phillips, the company's executive vice president of sales. "It's been a tough year, with a war economy. No question the euro has impacted price points on European-made products — and it's still rising. There are no fundamentals in the U.S. economy to drive it the other way. And the trade deficit is growing."

Phillips, however, is gladdened by consumer response to Natuzzi's brand and gallery presentations, which provide "a reason to buy better product."

Natuzzi's promotional brand, Italsofa, will open additional plants in Brazil and China within the next 60 days.

"This incremental manufacturing capacity will enable us to be more competitive on price and to take advantage of those synergies that larger manufacturers can offer," Phillips said.

Mark Parris, vice president of U.S. sales and marketing for Canadian-based Coja, termed 2004 "fair at best."

But Parris has high hopes for Coja's Chinese import line, which will be re-introduced at the Tupelo Furniture Market in February. Retails will range from sofas at $499 to a $1,299 home theater group.

"There's a place for imports as well as for the smaller independent dealer who relies on custom," Parris said. "That business remains healthy. Since the election, business has steadily begun to increase, with new placements written by reps, as well as consumer special orders in stores. Store traffic has definitely picked up. I hope it continues.

"We're looking for things getting better right into 2005," he said. "We're looking for a positive year. I am very optimistic."

While some producers admittedly faced struggles this year, not everyone suffered in 2004.

"We had a good year," said Matt Briggs, chief operating officer for Four Hands. "We're very happy with the amount of business we did."

Briggs was elated by the "amazing speed" at which dealers learned about leather. "A year ago, they didn't know bycast split or eight-way hand-tied," he said. "But they gained a very quick and rapid education at this October's market. Everyone who looked at product knew what they were looking at."

Much of that education stemmed from the popularity of Chinese imports and bycast, he said.

In 2005, Four Hands will forge ahead with more leather collections, addressing better leathers and better price points. "A vast amount of our business is bycast, but we're bringing in some top grains at higher prices and expanding our range of upholstery lines to six," Briggs said.

Steve Barr, president of HTL International USA, said, "2004 was a good year for us, mainly due to the differentiation of our product versus mass product out of China. We're offering styling from Asia with value pricing."

Motion has been a big hit for HTL. Launched in late 2003, it received a generous boost in 2004, Barr said.

He is keen on 2005 because of the movement he sees toward contemporary looks. "That has been our strength for 30 years," Barr said. "People are shopping contemporary and seeking us out. We're in the right place at the right time."

Another optimist, Harland Dick, director of leather upholstery at Bernhardt, said, "Our leather business remains strong. We continue to see significant growth in the category."

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