Palliser to shift some leather mfg. to Mexico
By Michael J. Knell -- Furniture Today, April 3, 2005
Winnipeg, Manitoba — Manufacturer Palliser will close one of four leather upholstery plants here, expand its Logic case goods factory in Winnipeg, and build a fourth leather facility in Mexico.
The restructuring moves "reflect the changing value of the Canadian currency and the increasing role of Asia in international trade," said President and CEO Art DeFehr.
In leather upholstery, the realignment "combines Canadian, U.S. and Mexican facilities to balance cost and geography," he said. "This permits Palliser to offer customized leathers and colors within a reasonable time frame based on the benefit of lower-cost Mexican facilities and geographically dispersed assembly locations."
By shifting production of leather upholstery for the U.S. market from Winnipeg to Mexico, DeFehr believes the privately held full-line producer can remain cost competitive while offering service Asia-based factories can't match.
"Right now, pricing is being determined by China, and the level is either flat or declining," he said. That is hurting Palliser in the U.S. market, which has accounted for 65% of company shipments in recent years.
The 30% appreciation in the Canadian dollar versus the U.S. greenback in the past 24 months also has hobbled the competitiveness of Canadian-made furniture, he said. But the Mexican peso hasn't appreciated and labor costs remain substantially lower than in Canada or the United States.
"If we went to China — which we could have — we would have the same difficulties as the next guy," DeFehr said. "Where many North American leather producers have opted for strategies that require a long supply chain from Asia, Palliser will seek to distinguish itself by continuing to offer choice within a reasonable cost and time frame."
Palliser will abandon strict truckload distribution from its Mexican plants, allowing partial truckloads, special orders and other service options. The Mexican facilities also will supply cut-and-sewn covers for the remaining Winnipeg leather plants.
The company's current leather facilities in Mexico employ 1,000 persons. The yet-to-be-built fourth facility will increase that to about 1,400 over the next 24 months or so.
The changes won't affect the fabric upholstery plant in Airdrie, Alberta, although 100 to 300 jobs could be lost in Winnipeg as a 150,000-square-foot facility there is converted from production to warehousing.
"The final impact on employment will depend on the future value of the Canadian dollar and the success of our new initiatives," DeFehr said. "Fundamentally, what we're doing is manufacturing upholstery in Canada for the Canadian market and for specialty markets where the costs are in line."
Palliser will add 50,000 square feet to its Logic wood division's 500,000-square-foot factory in Winnipeg while installing new technology to produce higher-value veneer products, expanding wood offerings beyond the laminate-based core lineup.
"The new equipment is already in place and the new building will be occupied in June," DeFehr said. As new product is developed, the division, which has its own lumber mill and particleboard plant, will add as many as 100 workers, he said.
The company expects to remain Manitoba's largest private-sector employer, with about 2,800 workers.
"Palliser balances a Canadian and an Asian strategy for its wood furniture products," DeFehr said. "The Logic division produces laminate and veneer products through the use of machine-driven processes. Palliser uses both company-owned and contract facilities in a number of Asian locations to produce the more labor-intensive part of its wood furniture line."
Most contemporary goods will be made in Winnipeg, while more traditional styles will come from offshore.
Palliser began adding veneered goods to its line last year, and DeFehr said these offerings will expand. "They will also allow us to move up into the better price points," he added.
"When all of the changes are in place, Palliser expects that its production capacity and the location of facilities will be more closely aligned to its market, and the overall cost base will be reduced," he said.
