High Point — Starting price points represent a key strategic element for any leather upholstery manufacturer, propelling consumers into stores for potential stepup business and ensuring that leather satisfies a variety of tastes and pocketbooks.
Starting retail price points of $599, $699 and $799 for a sofa currently are popular in the always-evolving promotional leather segment, but leather resources continue to see action across all price points in their particular niche.
Sam Contreras, product manager for Premium Leather by Coaster, believes every resource needs a good-better-best program to succeed. "We need to mirror who we are selling to," he said.
Hamilton & Spill, which rolls out its second leather introductions this spring, is building on long-term customer relationships as well as delivering values from Asia on corrected, semi-aniline, bycast and leather-match entries.
"We believe there is a market for promotional leather and we are offering variety from $399 to $1,299," said Brenda Plowman, H&S's vice president of sales for the U.S.A. "We are offering new product to broaden what we have at the middle price points," which at $799 to $999 represent the bulk of the Canadian-based importer's business.
"There's a large group of consumers interested in leather, but not interested in breaking the bank," she said. "We want to create opportunities for our customer. We can offer them 'affordable' leather. Some retailers look at leather as a step-up opportunity only. That strategy depends on the retailer.
"With an eight-way hand-tied sectional at $999 — comparable to product we have seen at $1,999 to $2,499 — they can use it as a hot promotion," Plowman continued. "It provides great value to customers and it is a quality product, packed with value in all-leather."
At Ashley's Millennium division, $499 is the key starting price point for its all-leather models, as well as its bycast container program. Tom Leon, president of Millennium, said leather pricing has undergone significant deflation in the past 12 months but he's still bullish on the category.
"It's a value story, not a loss leader," he said. "In leather, it's no longer a question of affordability; consumers today have a choice."
Despite the dip in leather prices, quality remains high, Leon said. "Consumers are getting a better value today than ever, as much as 20% better."
The bulk of the business
He attributes the enhanced value to technological improvements and increased capacity. While $499 is a popular price point to stir consumer traffic, it doesn't represent the bulk of Ashley's business, which extends as high as $1,299 to $1,699, Leon said.
Although Acme Furniture has seen prices for its bedroom and dining room lines migrate upward in recent years, the Asian importer has clung to a $599 starting retail for its stationary leather sofas.
"It's easy to generate business at this price point, but a struggle to maintain the same price for two years," said Acme Vice President Marvin Ruben, referring to the competitive pressures that force him to keep his pricing in check.
Italian Leather Seating features an opening sofa price point of $799 retail in its leather or bycast covers. The advent of bycast leathers has had significant impact on starting price points, said Dennis Kramer, ILS vice president of sales and marketing.
"Bycast has really changed the typical promotional starting leathers because it offers strong perceived values at the starting prices," he said. "If (companies) have the right product, you can put bycast on it and it will sell."
The euro-to-dollar exchange rate is pushing Italian Leather Seating's previous $799 starting ticket up to $899 or higher.
While 90% of its business is done from $995 to $1,295, Leather Italia-USA's Chinese-built promotional product — six sofas from $599 to $699 — is on par with its peers.
"We have seen prices fluctuate over the past four years, climbing steadily from $499 to $599, but they are leveling out now," said President Michael Campbell. "They have traded price points for a better starting grade of quality."
Campbell stressed the quality of his $599 to $699 "loss leader," noting the sofas offer 2.5-density foam seating on a hardwood frame and fully padded front sides and backs, in a premium grade Italian leather cover.
From Italy to Asia
Leather Italia-USA initially imported finished goods from Italy, but switched to Asian products to meet its dealers' pricing demands.
Emerald Home Furnishings' promotional workhorse, the Cochon sofa at $799, is distributed via mixed containers from its Seattle warehouse or, effective this month, shipped directly from its Chinese warehouse.
"No one really starts much below that (price point)," said President David Beckmann. "Otherwise you're looking at splits and questionable tanning. With little room to go too much higher or lower, we are happy with the niche we have. We are not chasing downward (pricing); it's more about being consistent (throughout the entire product line)."
Although more than half its leather upholstery retails at $999, Emerald is now concentrating on better leathers at the upper end of its line, which tops out at $1,299.
Emerald, which started shipping from China six months ago, this month adds a second warehouse in China. Five new models, including Cochon, will be stocked at the new facility, in addition to the 10 frames that make up the original core program, Beckmann said.
Fred Starr, president of Natuzzi Americas, said that recent sales dips in the marketplace have led to slippage in retail pricing. With retail tags in its Italsofa promotional brand targeting the $799 to $999 price points, "We recognize there is a bottom below us. Our strategy is to offer good styling, scale and covers in (the $799–$999) price range," he said.
Those starting price points represent 40% to 45% of all sofas sold, but Starr said the bulk of Italsofa's business is built around better-priced products at $1,099, $1,199, $1,299 and $1,499.
Italsofa, marketing mostly base-grade leathers produced at facilities in Brazil or China, recorded sales of $100 million in 2004, he said.
LeatherMart, the sister of pricier LeatherTrend, sets $1,199 as its starting price point, said Bryant Dickens, president of the Tijuana, Mexico-based twin operations. But, he said, "Our real strength lies in our $2,999 three-piece packages (sofa/loveseat/chair) geared for department stores.
"With some retailers chasing pricing to the bottom and others trying to chase it up," Dickens said, "we are doing all sorts of things to enhance our products to better help sell them at retail."
With LeatherMart's four-week delivery program and "still a lot of problems in China, people tend to look to us and consider us as a domestic resource," he said. "We had wonderful (double-digit) growth last year."
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