Logisitics key for Latin American sources
Thomas Russell -- Furniture Today, March 7, 2005
HIGH POINT -- Regardless of how well furniture importers speak of Latin America as a source, the product has to pass another crucial test – with the retailer and the consumer.
So if something goes wrong – such as a problem with drawer construction or delivery times – it can tarnish the source country’s image and future business prospects.
Delivery was Latin America’s biggest problem last year, according to several major retailers interviewed.
“Miami is the gateway to the rest of the Americas, but we are unwilling to live with inconsistent supply chain logistics,” said Keith Koenig, president of Fort Lauderdale, Fla.-based City Furniture. “Generally, we haven’t had problem getting product from the factories as much as we have had getting containers to ship.”
Koenig was referring to container shortages and other logistics challenges his company experienced in dealing with Brazil last year.
His 14-store chain has been importing master bedroom and youth bedroom plus some entertainment armoires and wall units from Brazil for five years. Because of the quality and overall price, City was ordering as many as five to ten containers a month of some individual groups.
Unfortunately, the container shortage tied up some product a few weeks at a time, if not longer.
Overall, Latin America product represents about 2% of City’s overall $263.7 million business. But Koenig predicts that share will drop as the company looks to other sources in Asia with a better handle on logistics.
“If we can’t get consistency in the supply chain, we are going to re-source some of those goods,” he said.
Koenig isn’t the only furniture retailer facing logistics problems. Others described similar experiences as well as issues with quality and construction on goods from Brazil and Mexico, the two largest furniture exporters in Latin America.
But while these retailers acknowledged the logistics issues, some said they aren’t ready to curtail their business with Latin America just yet. That’s based in large part on the quality, price and overall value they see coming out of this part of the world.
Jake Jabs, president and CEO of Englewood, Colo.-based American Furniture Warehouse, has been importing from Mexico since 1968. Today, his company buys 13 bedroom sets from Mexico as well as some dining rooms, desks, occasional pieces and armoires.
The rustico styling of many of the bedrooms and heavy pine armoires in particular is popular among consumers in his region.
American has been buying out of Brazil for the past five years, including a few bedroom groups from Ashley, which has a plant in Brazil. American also buys some bunk beds and day beds out of Brazil as well as some bedrooms and armoires from Chile.
Quality issues from Latin America have arisen from time to time, particularly in the early stages of the company’s sourcing. But Jabs worked through the quality issues, and American now does between $7 to $8 million in business with Kemp Enterprises alone, which sells bedrooms and other products from Mexico, Brazil and Chile.
Jabs said logistics has been a challenge at times, but no more than other areas. And the situation hasn’t reached the point where it’s causing him to alter his business out of Latin America, which he estimates at about 5% of American’s estimated $300 million-plus business. If anything, he expects his Latin American sourcing to grow.
Like Koenig, Dale Zimmerman, general manager of the six-store North Dakota-based Zimmerman’s Furniture, isn’t happy about the logistics problems from Latin America.
Last year, they caused shipping times – from the time the product was ordered to the time it got to the store – to double from 60 days to 120 days out of Brazil.
That upset some customers, Zimmerman said. But he said Brazilians are very friendly and accommodating and, in some cases, made amends by overnighting individual pieces that customers had ordered. That ensured that they weren’t tied up in port waiting for a container.
“Because they couldn’t get the containers, they would air-freight the stuff,” Zimmerman said. “It must have cost them a fortune.”
That type of service is one reason Zimmerman’s plans to keep its business out of Brazil at about 15% of its total case goods volume. The retailer’s current mix of goods from Brazil includes bedroom and youth furniture.
In particular, Zimmeman likes the quality: the youth products, especially, have cleaner looks and finishes than some other imported goods. Not surprisingly, he also has found the landed cost of the goods to be roughly 10% less than comparable items he has gotten out of China.
In addition, he noted how Brazil often does a better job with point-of- purchase materials than China.
Robert Kling, a senior vice president of merchandising for Pier 1 Imports, said his company has been sourcing from South America for about 20 years. It did some business over the years out of Argentina, but ultimately found Brazil to be a more reliable source. It also once did business out of Chile, but said that is no longer an affordable option.
“Brazil is our biggest focus in Latin America right now,” Kling said. “Brazil has grown dramatically, but it has been very stable.”
Kling did not say what percentage of the company’s $1.3 billion business comes from Brazil. However, he said, there is more Brazilian-made furniture on Pier 1’s floors than ever.
“It has dramatically increased in recent years,” he said of the volume out of Brazil. “We are definitely at a peak.”
Today, the retailer sources from Brazil for most of its categories, from dining and bedroom to accents and occasional. Except for some chairs with leather seating, it is not getting any leather or fabric upholstery.
Brazil’s strengths, from Pier 1’s standpoint, are in the low to middle price points. As quality has improved over the past five years, however, activity has gravitated more to the middle price points, Kling said.
Pier 1 also has sourced products out of Mexico, but Kling said the plants there don’t do as good a job in finishing as Brazil.
“Rustic is what they do well,” he said of Mexico. “They are pushing into other areas, but at a slower pace.”
Brazil also has been a good resource for Gil Kemp, president of Home Decorators Collection, a St. Louis, Mo.-based mail order catalog. His company has been getting products from there for about eight years, through Primex, a New York-based importer that sources master bedroom, youth, formal and casual dining, metal beds and occasional and home office.
Kemp’s catalog company primarily sources bedroom and ready-to-assemble, solid-wood pieces from Brazil, including accents and occasional furniture. It also sources some dining items, such as sideboards.
He said there have been challenges with issues such as packaging and assembly instructions, but noted those are common with most foreign sources.
Today, he believes Brazil’s main strength - and global advantage - is its supply of raw materials. But whether or not that is enough to help sustain its business long-term remains to be seen.
“They have such a range of looks, but a big issue will be (price) competitiveness,” Kemp said.
The region’s ability to handle logistics issues could well determine the success of Brazil and other Latin American-based furniture makers.
Retailers such as Koenig say they don’t necessarily have time to wait for improvements.
Others are more optimistic, noting the problems have already started to ease.
“The freight lines have gone through some turmoil with South America and with Brazil, in particular, because the growth has been so rapid,” said Pier 1’s Kling. “They have done what they need to, to address the issue.
“There are periodic dips along the way, but as Brazil’s growth eases a little, that will give freight companies time to adapt to that market. They are just bumps in the road. Being an importer, you understand those.”
