Top 10 Canadian sources struggle for growth as imports gain force
Group sees only a 1.9% gain in '04, led by big jumps at Primo and Magnussen
By Michael J. Knell -- Furniture Today, June 12, 2005
Ottawa — Canada's Top 10 Furniture Resources continue to dominate the industry even though they aren't setting growth records as they did in the early years of the free trade era.
The Top 10 had total household furniture shipments of C$2.15 billion in 2004, a scant 1.9% gain on the prior year's C$2.11 billion and well below the 6.3% advance enjoyed by the industry as a whole, according to Statistics Canada.
Of the 10 companies on the list, only five reported gains last year while four others had flat year-over-year sales. Palliser, this country's largest producer of assembled household furniture, was the only company reporting a decline in sales.
Reflecting the increasing importance of Asia-made product to retailers on both sides of the Canadian-U.S. border, the Top 10's growth leaders were this country's two largest importers — Magnussen Home Furnishings and Primo International.
While the publicly held Dorel Inds. saw its overall home furnishings sales advance 1.7% last year to C$703.6 million, it would have suffered setbacks had it not been for the sterling performance of its new Dorel Asia division, which saw sales grow by a robust 40% to C$104.2 million last year.
The move to a blended strategy of mixing domestic and imported goods also accounts for most of the modest gains made by case goods and upholstery maker Shermag last year, as its sales moved up 1.7% to C$218.1 million. Since its start-up two years ago, Shermag's imported case goods line now accounts for about 20% of volume, making it the fastest-growing segment of the company's business.
Of the Top 10, only Dorel, Palliser and Shermag have adopted a blended strategy combining both homegrown product with imports. The five remaining manufacturers on the list — Canadel, La-Z-Boy Canada, Gusdorf, South Shore and Dutailier — don't import finished goods for resale, choosing instead to concentrate on becoming efficient, low-cost domestic producers.
As ready-to-assemble specialists, both Gusdorf and South Shore are heavily automated with relatively low labor costs, so developing an import program would offer them little advantage. But they are challenged by the rising costs of raw materials such as particleboard.
Meanwhile, casual dining powerhouse Canadel has focused on customization and rapid delivery, believing choice and speed will be rewarded by a décor-conscious consumer. This approach gives Canadel a unique selling position that provides high margins to its retail partners. And it separates the company from the imports, which are geared for large-volume production runs and have longer delivery times because of shipping distances.
With the sole exception of La-Z-Boy Canada, the Top 10 resources continue to be dependent on sales to U.S. retailers — indeed, sales range from 50% of volume for Gusdorf Canada and South Shore to 90% for Dorel. For Palliser, Shermag, Canadel, Magnussen, Dutailier and Primo, sales to U.S. retailers account for between 65% and 80% of revenue.
The Top 10's sales to U.S. retailers totaled an estimated C$1.56 billion last year, a modest gain over the C$1.51 billion recorded in 2003 and representing 72% of their combined volume.
This dependence on the U.S. market has made the Top 10 players increasing vulnerable to the sharply priced Asia-made imports that have flooded into the country in recent years. The deflation that these imports have generated in categories such as leather upholstery, casual dining and bedroom has caused Canadian producers to adjust their product lineups while aggressively looking for new ways to cut costs.
The most significant complicating factor is the value of the Canadian dollar, which has soared against its American counterpart. Over a period of about 18 months between early 2003 and late 2004, the exchange rate went from C$1 equals 63 U.S. cents to C$1 equals 82 U.S. cents.
It could be reasonably argued that had the exchange rate remained stable at a value of 63 U.S. cents, every member of the Top 10 would have seen substantial upticks in sales, with the possible exception of Dorel, which operates in U.S. dollars. This is particularly true of both Canadel and Shermag.
The rapid shift in the value of the dollar is almost completely responsible for the current woes plaguing the publicly traded Shermag, although its situation wasn't helped by a series of labor disputes that occurred in mid-2004. These developments resulted in Shermag permanently closing two of its factories over the past few months with at least two more plants scheduled for closure.
Surprisingly, the only member of the Top 10 to report a sales decline in 2004 was Palliser. Much of the decline can be attributed to the company's sale of its DeFehr division to a company owned by Frank DeFehr, brother of Palliser CEO Art DeFehr. At the time, the DeFehr division represented about 18% of Palliser's volume.
While Palliser has made up much of the difference, the combination of currency woes and deflation prompted the company to shift its leather production for the U.S. market to Mexico, closing a plant at its Winnipeg home base. Palliser believes that doing this enables the company to take advantage of Mexico's lower labor rates while still providing choice and speed to U.S. consumers.
When the announcement was made a few weeks ago, Art DeFehr pointed out that while the Canadian dollar has strengthened against its U.S. counterpart, the peso had remained fairly stable, meaning cost advantages could be retained on product made in Mexico.
Of the Top 10, only La-Z-Boy Canada seems immune from the pressures of international trade, concentrating as it does on the Canadian market. The wholly owned subsidiary of La-Z-Boy Residential has focused on building its brand in Canada, either by partnering with major retailers such as Leon's and The Brick or through the growth of its freestanding La-Z-Boy Furniture Galleries stores.
| Canada's Top 10 furniture resources | ||||
|---|---|---|---|---|
| Furniture shipments in C$ millions | ||||
| Rank | Company name, home base, Web site, notes | 2004 | 2003 | Percent change 2003 to 2004 |
| All figures, with the exception of those supplied by publicly held companies that break out line-of-business sales for household furniture, are Furniture/Today market research estimates. All data for calendar years ended Dec. 31, or the fiscal year ends closest to that date. Source: Furniture/Today market research |
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| 1 | DOREL INDS. | $703.6 | $691.6 | 1.7% |
| Montreal, www.dorel.com Total revenues: | $2,192.8 | $1,630.4 | 34.5% | |
| Publicly owned producer of ready-to-assemble furniture, assembled youth furniture, futons, barstools, card tables, car seats, high chairs, cribs, strollers and bicycles. Reports sales and earnings in U.S. dollars, converted here to Canadian dollars. Ranking based on sales of its Home Furnishings segment, whose divisions include Ameriwood, Cosco Home & Office and Dorel Asia, and on sales of cribs and related furniture items by its juvenile segment. Value of Canadian shipments was $217.2 million in 2004, down 11% from C$244.1 million in 2003. Operates three Canadian factories; two in Cornwall, Ontario, make RTA furniture; one in Montreal specializes in futons and small furniture items. Key retailers include Wal-Mart, Kmart, Target, Zellers, office superstores and hardware/home centers in the United States and Canada. The United States accounts for about 90% of its home furnishings volume. In 2002, launched Dorel Asia to develop product made in the Pacific Rim and sold in North America; its 2004 sales were an estimated $104.2 million, a 40% jump over 2003's $73.8 million. Furniture brands include Ameriwood, Ridgewood/Charleswood, SystemBuild, Carina, Alta, Samsonite, Cosco Home & Office, Dorel Asia, Dorel Home Products, California Closets and Trading Spaces. | ||||
| 2 | PALLISER FURNITURE | $399.3 | $441.2 | -9.5% |
| Winnipeg, Manitoba,www.palliser.com, www.eq3.com | ||||
| Canada's largest producer of assembled furniture at mass-market price. Makes leather motion and stationary upholstery; casual contemporary case goods, including bedroom, dining room and home office; and occasional furniture, including wall units and entertainment centers. Operates factories in Winnipeg and in Airdrie, Alberta; Troutman, N.C.; Saltillo, Mexico; and Semarang, Indonesia. Currently, about 50% of manufacturing is in Canada; the rest is divided between the United States, Mexico and Indonesia. Shipments to the United States accounted for 65% of sales in 2004. In December 2003, sold its solid-wood DeFehr division, accounting for about 18% of volume, to a company headed by Frank DeFehr, brother of Palliser CEO Art DeFehr. In early 2005, said it was shifting all leather upholstery production for the U.S. market to Mexico, closing one Winnipeg facility and building another in Mexico sometime this year. Currently has a network of some 15 freestanding corporate and franchised EQ3 stores, and 250 in-store galleries, offering contemporary furniture, accessories and tabletop at entry to midlevel prices, targeting primarily those under age 35. Key retailers include Leon's, Sears Canada, The Brick, BMTC and major independents in Canada; and Levitz, RoomStore, Wickes, JCPenney and major independents in the United States. | ||||
| 3 | SHERMAG INC. | $218.1 | $214.5 | 1.7% |
| Sherbrooke, Quebec, www.shermag.com | ||||
| Publicly owned producer of bedroom, dining room, home office, occasional, glider rockers and high-end contemporary fabric and leather upholstery. Sales figures for the trailing 12 months ended Dec. 31, 2004, and Jan. 2, 2005. Figures include sales of subsidiary Jaymar Furniture of Terrebonne, Quebec, an upholstery maker acquired in early 2003. Furniture sales for the fiscal year ended April 2, 2004, were C$225.1 million, a 23% jump over C$181.8 million in the previous year. Shipments to the United States accounted for 72% of sales last year and 73% the year before. Labor disputes last year prompted the shift of several collections to China; imports now account for about 20% of volume. Continues to lay off workers and close plants in Canada, and is changing its divisional structure to a traditional line structure, centralizing all product development and marketing. Key retailers include Sears Canada, The Bay and most market dominant retailers in Canada; and department stores and major independents in the United States. | ||||
| 4 | CANADEL FURNITURE | $165.0 | $165.0 | 0.0% |
| Louiseville, Quebec, www.canadel.ca | ||||
| Family-owned casual dining producer with merchandising focused in three areas: Canadel Workshop, a customization program; Color Shop, a higher-end version of Workshop; and a private-label line for Thomasville dedicated stores. Will re-enter the bedroom category at the October High Point market. Entire line made at seven factories in Quebec; production space, including its network of dedicated suppliers, totals 1.3 million square feet. U.S. shipments account for 88% of sales. | ||||
| 5 | LA-Z-BOY CANADA LTD. | $132.5 | $106.0 | 25.0% |
| Waterloo, Ontario, www.la-z-boy.com | ||||
| The motion and stationary upholstery producer is a wholly-owned subsidiary of U.S.-based La-Z-Boy Residential. Currently operates 24 dedicated stores; believes Canada can support in excess of 40 stores. Opened two La-Z-Boy Furniture Galleries stores in 2004, two in late 2003 and converted four existing stores to the New Generation format. Also has over 60 in-store galleries. Key retailers include Leon's, The Brick and Ameublements Tanguay. | ||||
| 6 | MAGNUSSEN HOME FURNISHINGS | $130.0 | $115.7 | 12.4% |
| New Hamburg, Ontario, www.magnussen.com | ||||
| Family-owned company, originally a case goods manufacturer, has evolved into Canada's largest importer/distributor of furniture, including occasional tables, accent furniture, master bedroom, dining, entertainment centers and wall systems. Signed a licensing agreement with U.S. TV personality Cristina Ferrare in 2003, and recently reorganized its product development and merchandising team. Canadian retailers account for about 20% of sales, U.S. retailers for the remainer. Sales offices and distribution centers in Riverside, Calif., and High Point. | ||||
| 7 | PRIMO INTERNATIONAL | $115.0 | $89.0 | 29.2% |
| Montreal, www.primointernational.com | ||||
| Family owned and operated producer of medium to high-end bedding and futons, and importer of a wide range of China-made goods, including innerspring and visco-elastic bedding, fabric and leather upholstery, metal beds, bunk beds, and casual and formal dining. Currently, 90% of its line is made in China and the Pacific Rim. Operates a factory and distribution center in Montreal. Opened distribution centers in China and Atlanta last year and is planning to add another on the West Coast. Key retailers include Sears Canada, Leon's, Brault & Martineau, The Brick, United Furniture, The Bay, Dufresne Furniture & Appliances and Home Hardware in Canada; and Rhodes, FMG Buying Group, W.S. Badcock, R.C. Willey, Art Van, Bob's Discount, American and Value City in the United States. Sales to U.S. retailers accounted for 60% of volume in 2004, up from 52% in 2003. | ||||
| 8 | GUSDORF CANADA | $104.0 | $104.0 | 0.0% |
| Montreal, www.gusdorf.com | ||||
| Privately held, family-operated ready-to-assemble furniture maker founded in 1977 as the Canadian branch of Gusdorf U.S.A; acquired the parent's trademark in the early 1980s. Operates a 350,000-square-foot factory producing TV/video stands, home theater entertainment centers, home office, microwave stands and bookcases. Currently imports about 25% of shipments from China and elsewhere. Sales to U.S. retailers account for 50% of volume, with 15% going to Mexico and other countries. Key retailers include independent furniture stores, mass merchants and electronics stores. Sales offices in Toronto, Vancouver, British Columbia, and St. Louis. | ||||
| 9 | SOUTH SHORE INDS. | $100.0 | $100.0 | 0.0% |
| Sainte-Croix, Quebec,www.southshorefurniture.com, www.freedomcollection.com | ||||
| Privately held, family-operated producer of assembled and ready-to-assemble furniture, including bedroom, home office and entertainment centers. Operates three factories and distribution centers, in Sainte-Croix, Laurierville and Coaticook, Quebec. | ||||
| 10 | DUTAILIER | $85.0 | $85.0 | 0.0% |
| St-Pie, Quebec, www.dutailier.com | ||||
| Privately held specialist in glider rockers and juvenile furniture under four trademarks: Dutailier, Avante Glide by Dutailier, EG by Dutailier and Towne Square by Dutailier. Acquired juvenile furniture maker E.G. Furniture in early 2003, revamping its offerings into 13 core collections, each with a minimum of 25 items available in 25 colors. Operates five factories in Quebec, Virginia and Texas. Sells primarily to independent furniture and juvenile products retailers in Canada and the United States. The latter accounts for 70% of shipments, with another 10% sent to Europe and Latin America. | ||||
| Totals | C$2,152.5 | C$2,112.0 | 1.9% | |
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