Shermag closing plant
Struggles to compete with imports
By Powell Slaughter -- Furniture Today, June 20, 2005
Sherbrooke, Quebec — Full-line manufacturer Shermag will close a bedroom factory in Victoriaville, Quebec, in July and expects to close one or two more plants as it struggles to compete with Asian imports.
The latest closing, effective July 15, will result in 95 lost jobs. Shermag had laid off 80 employees at Victoriaville in February, and closed another plant in Scotstown, Quebec, the same month.
The shutdowns will result in a one-time charge of C$5 million in Shermag's fourth quarter ended April 1. The company, which also will take a non-cash writedown of C$11 million in goodwill on its Jaymar upholstery division, expects a fourth-quarter loss of C$1 to C$1.05 per share on revenues of about C$64 million.
Shermag, which expects to release fourth-quarter and year-end results June 15, anticipates additional restructuring charges of C$7 million in the current fiscal year.
In addition to Asian competition, the weaker U.S. dollar has hurt Shermag's business, said President and CEO Jeff Casselman in a conference call with analysts to discuss the plant closings.
The company is responding with a two-pronged approach, he said. First, domestic production will focus on customization and speed to market. Second, the company is improving its importing capability to better compete on price.
"The kinds of products we'll produce domestically are based on choice, personalization and speed" of production, Casselman said, noting that manufacturing changes led to strikes at three plants after Shermag sought more flexible work rules.
"While we have not completed negotiations with all of our plants ... I do believe Shermag's employees understand the importance of changing our model," he said, with labor agreements reached for 10 years at its Disraeli plant and 7½ years at Lennoxville.
With domestic consolidation, Shermag looks for fixed-cost savings of $6 million a year, with the full benefit to be felt in fiscal 2006–2007.
Casselman said imports, which now account for a quarter of Shermag's sales, are helping in less tangible ways. "The Bourbon Street (collection) is now made in China," he said. "It allows us to meet market pricing, but it's difficult to quantify that as a cost savings."
The company also said it sold a sawmill in North Anson, Maine, that had been closed since 2001 due to excess capacity. Shermag is reassessing its other sawmills, Casselman said, adding, "I would not exclude any option."
Importing also will play a greater role in the company's glider rocker business, where low-cost but lower-quality goods are eating into Shermag's business.
"We do not intend to lower the quality of our (glider rockers), but through judicious sourcing we can bring more value to those higher-end products," Casselman said. "We want to close a $200 gap at retail to between $50 and $75."
