Contenders face range of tough challenges
By Michael J. Knell -- Furniture Today, June 27, 2005
Ottawa — The nine contenders for this year's Top 10 Canadian Furniture Resources list share many of the same challenges.
Collectively, this group saw their sales volumes drop to C$492.2 million last year, off 5% from the C$518.3 million recorded in 2003. While much of the swing can be attributed to lower sales to U.S. retailers, these producers also have lost ground at home due to the rising tide of imports from Asia. They've also been slammed by unfavorable exchange rates.
In general, the contenders have been reluctant to shift their production offshore or supplement their existing offerings with imported goods. Instead, they've chosen to concentrate on being low-cost domestic producers.
Of the nine companies, only two are active importers — Sklar-Peppler and Stylus Made-to-Order Sofas — and offshore goods still represent only about 10% of the total volumes of both.
Six of the nine companies are upholstery producers with strong custom-order programs and short delivery cycles that are rarely longer than 21 to 28 days. Even metal specialist Amisco has embraced the customization approach. It has invested heavily in its L'Islet, Quebec, facilities with the goal of achieving shorter lead times.
All of these companies believe that service — defined as the combination of quick delivery and the ability to customize product to suit consumer tastes — is their competitive advantage. Unlike the imports, they seldom demand that retailers buy by the container.
While most offer leather, they typically focus on the "better" and "best" categories, conceding the deflationary promotional category to the imports. But the bread-and-butter of their business is fabric upholstery and is likely to remain so for the foreseeable future.
The six upholstery makers also tend to focus on the Canadian market with exports to the United States generally accounting for 25% or less of total volume. Stationary upholstery house Superstyle doesn't sell into the U.S. market at all.
However, the three other non-upholstery contenders — solid-wood specialist Durham, ready-to-assemble house Bestar and Amisco — are all heavily dependent on U.S. exports. For each of these companies, sales to U.S. retailers account for at least 70% of volume. That means they are more exposed to the challenges caused by Asian competition and the weakening of the U.S. dollar.
Durham remains one of the Canadian industry's most important exporters, even though its U.S. sales fell to approximately C$59 million last year. Durham has higher U.S. sales than several of the manufacturers found on the Top 10, including both Gusdorf Canada and South Shore, and accounts for one-third of all export sales made by the nine contenders.
Two other Canadian contenders — Sklar-Peppler and Distinctive Designs — have taken a slightly different approach to the U.S. market than Durham. Both have acquired U.S. factories — Sklar in Oregon and Distinctive in North Carolina — moves that allow them to operate in U.S. dollars. This strategy also lowers freight costs.
The upholstery producers have been remarkably stable in terms of their leadership, ownership and physical structure over the past decade.
But both Durham and Bestar have seen significant changes in their operations in recent months.
Last year, Durham opened the first case goods factory to be rolled out in North America for a least a decade. The C$38 million investment was a cornerstone of the company's strategy to position itself as the continent's leading designer and producer of high-quality, solid-wood case goods. However, economic forces — particularly the rapid weakening of the U.S. dollar — had derailed that effort at least temporarily as the company has put the plant into mothballs.
However, Durham execs believe the plant will resume operations in the near future and have brought in outside experts to help reposition the facility.
While Bestar hasn't lost any of its production capacity, the publicly held RTA specialist brought in a new executive team in 2004, led by President and CEO Jacques Hétu and CFO Martin Lamontagne. Through the late 1990s, Bestar had sales in the C$80 million range, but that total has fallen steadily over the last few years, dropping to C$43.7 million in 2004.
To reverse this slide, the new executive team's mandate is to complete re-engineer the company's operations while implementing new marketing and product strategies.
| Canadian furniture resources to watch | |||
|---|---|---|---|
| Furniture shipments in C$ millions | |||
| Company name, home base, Web site, notes | 2004 | 2003 | Percent change 2003 to 2004 |
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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 years closest to that date.
Source: Furniture/Today market research |
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| EL RAN FURNITURE | $82.1 | $78.3 | 4.9% |
| Pointe Claire, Quebec | |||
| www.elran.com | |||
| Family-owned specialist in fabric and leather motion and stationary upholstery. Key retailers include the Cantrex, Mega and P.A.S. buying groups, Sears Canada and BMTC in Canada; and El Dorado Furniture, Seigerman's, HOM Furniture, FNG Group and other independents in the United States. U.S. exports account for about 25% of sales, and Europe exports for 5%. | |||
| DISTINCTIVE DESIGNS | $79.3 | $81.2 | -2.3% |
| Toronto | |||
| www.distinctivedesignsfurniture.com | |||
| www.kroehler.ca | |||
| Privately held leather and fabric upholstery producer marketing 183 styles under the Distinctive Designs and Kroehler brands, the latter in Canada only. Also, stationary and reclining models, sofa-sleepers and occasional tables. In April 2005, opened its first U.S. factory in North Carolina. Key retailers include The Bay, Leon's and the Cantrex and Mega buying groups in Canada; and midsized to large independents in the United States. Has 29 Kroehler galleries in Canada, including one freestanding unit. | |||
| DURHAM FURNITURE | $75.3 | $84.7 | -11.1% |
| Durham, Ontario | |||
| www.durhamfurniture.com | |||
| Midpriced to high-end specialist in solid-wood case goods with factories in Durham and Chesley and a distribution center in nearby Hanover. Sells primarily to large independents such as DeBoer's, JC Perrault, Smitty's and Cottswood in Canada, and Walter E. Smithe, Weir's, Mastercraft Interiors and Gabberts in the United States. Currently, U.S. retailers account for 78% of sales. A new management team led by CEO Keith McSpurren and President Steve Wilson has been named after the retirement of President and CEO John Scarsella. | |||
| SKLAR PEPPLER | $53.2 | $60.8 | -12.5% |
| Whitby, Ontario | |||
| www.sklarpeppler.com | |||
| Privately held stationary fabric upholstery maker; also imports occasional tables. Operates factories here and in Portland, Ore. Closed its Toronto leather factory in 2004. Seventy-three percent of its volume is made in Canada, 17% in the United States, and the remainder is imported. Key retailers include Sears Canada, The Brick, Furniture Plus and other major independents in Canada; and Schneidermans, Gottschaulks, Bon Marche and R.C. Willey in the United States. Also has a small, independently owned network of freestanding gallery stores called Sklar Peppler Furnishings. Currently, 12.6% of sales are to U.S retailers. In 2005, launched a branding strategy to increase consumer awareness of the Sklar brand among consumers, particularly in Canada. | |||
| AMISCO INDS. | $49.0 | $51.5 | -4.9% |
| L'Islet, Quebec | |||
| www.amisco.com | |||
| Publicly held producer of entry-level to midpriced customized metal dining, beds, chairs and stools. Exited the office furniture category in early 2003. Despite gains in productivity, profitability was hurt by steep increases in steel prices, which virtually doubled during 2004. Key retailers include Cantrex, Leon's, BMTC and Sears Canada in Canada; and Sleepy's, Crate & Barrel and Room & Board in the United States. U.S. exports currently account for 70% of sales. | |||
| BESTAR | $43.7 | $44.3 | -1.4% |
| Lac-Megantic, Quebec | |||
| www.bestar.ca | |||
| A publicly held specialist in ready-to-assemble furniture. 2004 was a rebuilding year for Bestar, hard hit by the decline in the U.S. office furniture market in 2002. A new senior executive team is headed by President and CEO Jacques Hétu and Chief Financial Officer Martin Lamontagne. Closed its sales office in Saint-Hubert, Quebec, and consolidated all operations here. U.S. exports account for 70% of shipments. | |||
| SUPERSTYLE FURNITURE | $39.0 | $42.0 | -7.1% |
| Woodbridge, Ontario | |||
| www.superstyle-furniture.com | |||
| Family owned and operated producer of fabric upholstery at mass-market to medium-high prices. Also owns Trend-Line, a contemporary upholstery specialist, and sofa-sleeper specialist Simmons Upholstery Canada. Recently expanded into better-quality leather upholstery to complement leather from China. Key retailers include Sears Canada, Tepperman's, Dufresne Furniture & Appliances, Smitty's, Brault et Martineau, Stoney Creek, Leon's, The Bay, Cantrex and Mega Group. Doesn't export to the United States. | |||
| STYLUS MADE-TO-ORDER SOFAS | $35.6 | $36.5 | -2.5% |
| Burnaby, British Columbia | |||
| www.stylussofas.com | |||
| Makes stationary fabric upholstery at promotional to midmarket prices at its factory here, and imports promotional leather from China, now 10% of shipments. Sales include those of its Bert Woll Fabrics subsidiary. In November 2004, purchased by Terravest Inds., an income trust based in Vegreville, Alberta. Key retailers include The Brick, United Furniture, Urban Barn, Home Furniture and Couch Potato in Canada; and C.S. Wo, JR Furniture and Costco Home in the United States. U.S. shipments accounted for 14.5% of volume in 2004, up from 10.6% in 2003. | |||
| COJA LEATHERLINE | $35.0 | $39.0 | -10.3% |
| Toronto | |||
| www.coja.com | |||
| Family-managed, privately held producer of leather upholstery at medium to medium-high prices. Opened a manufacturing plant with a partner in China last year. Key retailers in Canada include Sears Canada, UCC, Tepperman's, De Boer's and Cantrex Group. Currently, U.S. sales account for 40% of volume. | |||
| Totals | C$492.2 | C$518.3 | -5.0% |
