Value, styling driving RTA
Sources continue to explore new niches
By Alfred Dockery -- Furniture Today, September 12, 2005
High Point — Ready-to-assemble furniture makers are seeing solid growth in home office and home entertainment as well as in new categories, such as kitchen and garage furniture.
Residential office collections and entertainment consoles that can hold larger CRTs and plasma or LCD televisions are doing well right now. Smaller desks designed for laptops also are capturing consumers' interest.
"RTA is being driven by the increasingly lower price points of case goods and the higher expectations of consumers," said Stephen Wahrhaftig, vice president of marketing for Ameriwood. "They expect it to look and feel like case goods."
Wahrhaftig added that "RTA is moving into areas where it had not been that big in the past — the other rooms of the house — including the bedroom, the kitchen, the laundry room, closets and the garage."
In addition, the RTA segment also is experiencing some price increases, a reflection of the rising cost of raw materials and consumers' desire for higher quality goods.
"Price points are creeping up," said Jim Schmidt Jr., vice president of marketing and merchandising for Bush Furniture. "They had crept up some as a result of last year's price increases brought on by board costs. It really improved the quality of the product.
"The consumer is coming back with a desire to pay a little bit more to get a little better quality. They are looking for better quality, for a product that will last and also for more design elements."
Susan Dountas, vice president of merchandising for Sauder, also has noted an uptick in pricing and value.
"We have a very diverse customer base, from discount channels to office superstores and electronics, which means our price points are also broad — from $29.99 to $599.99," Dountas said. "Discounters are offering slightly higher retail prices than in previous years, but are also putting increased function and style at those higher price point levels, so the value proposition is still strong."
Several RTA executives lauded Target for taking a leadership position with its strategy of providing diversity of product and style rather than just chipping away on pricing.
"The main driver for RTA continues to be value in any or all product categories," said Phil Miller, senior vice president of Creative Interiors. "In a lot of cases, availability (is a driver) as well, since it is an immediate purchase.
"A third factor would be the amount of exposure consumers are getting to RTA. The majority of the business goes through mass merchants, so the exposure to the product category is very high."
Fresh materials
For home office, Ameriwood has partnered with Belkin, a maker of connectors and hubs, to incorporate USB ports into its desks. The company also has added resin materials to its product line, including a new rolling file that Wahrhaftig referred to as a "game-changing product in the file business."
In home entertainment, Wahrhaftig has observed a trend away from metal and glass back toward the warmth of wood.
"We are really seeing a tiredness starting to spread with the high-tech look, especially units with no storage capability," he said.
At Bush, the Series A and Series C desks continue to be strong performers. The company also has added new storage items, desks and finishes.
In entertainment, Bush has added some metal and glass offerings with open architecture. The company also has introduced real wood and veneers in combination with metal and glass.
"The mixture of materials is providing our designers with more elements to work with and has also been well received by the consumer," Schmidt said.
Michael Rush, president of Rush Inds., observed that RTA producers have expanded their own sales presence on the Web as one way to offset the increased competition for retail shelf space.
New niches
Rush Inds. is expanding into seasonal goods like rocking chairs, folding chairs and Adirondack-style chairs. The company also is diversifying into new categories. One example is an RTA version of a home popcorn maker. Rush also plans to introduce 40 new SKUs in cedar storage at the October High Point market.
At Bush, recent additions include occasional tables that match the home entertainment and office collections it brought out in April. Schmidt says that this "whole house" approach gives retailers an opportunity to generate additional sales.
"Home entertainment furniture and occasional tables have often been from different suppliers," Schmidt said. "We are finding that there is a desire for the entertainment furniture, occasional tables and potentially the home office to match. There is a real desire for a common look."
Creative Interiors reports strong kitchen business, and has made strides in storage — especially craft storage.
"In all RTA categories, I'm seeing price points actually starting to move up at retail," Miller said. "I'm also finding more fashion coming into play in home office and entertainment. There is much more shape, movement and design features versus raw functionality.
"In years past, the main reason to purchase RTA furniture was function. Now people are looking for RTA furniture to be an integral piece of the design elements in their homes."
Import impact
All of the RTA executives interviewed for this article see China as the major player in furniture imports for the foreseeable future. Several RTA sources have adopted a strategy of importing portions of their lines while maintaining domestic production for the market segments that continue to make the most sense.
"We are also bringing in imported product from China," Rush said. "We gear our Chinese products on things that we don't do so they complement us versus competing with us. It's more of a synergistic relationship."
For Rush, these imports include glass, metal and shaped parts, which the company does not produce in-house. The company also tries to use products from China to get into additional categories. Rush noted that he has been doing business with China for 25 years.
Ameriwood's Wahrhaftig pointed out that South America — with its combination of excellent raw materials, state-of-the-art production facilities and Western furniture sensibility — is another strong import contender. Mexico and Eastern Europe are other import players to watch.
"We're not walking away from domestic capacity, but you have to balance it," Wahrhaftig said.
Competitive pressures
Most of the RTA manufacturers reported that business in on the upswing in most segments and noticeably better than last year. Costs also are said to be stabilizing.
Sources are optimistic about future business and point to increased home ownership — whether new or existing — as an opportunity for furniture makers. Some also mentioned strong growth in sales to small, start-up businesses. The theory here is that entrepreneurs are looking for furniture like they had when they were in corporate positions but want or need a better value.
"Our business has increased from last year, and we believe that trend will remain throughout the remainder of this year and into 2006," Dountas said.
On the other hand, one executive described his company's sales as flat or maybe just a click up. He was also concerned about the impact of rising gas prices on consumers' discretionary income.
The last few years in general have been challenging for RTA makers. Competition from offshore wood sources has intensified, and deflationary pressures have made assembled case goods from China and other regions increasingly attractive.
In addition, flat-pack furniture makers started the new millennium with a kick in the gut when several big-box retailers — including Ames, Caldor, Bradlees and Ward's — closed or retrenched. Sears also eliminated its furniture department, and Kmart closed hundreds of stores.
RTA specialists also suffered from a downturn in the market for home office furniture that took place during the downsizings of the early 2000s.
One company currently feeling the squeeze is O'Sullivan Inds., which recently amended its $40 million revolving credit agreement with General Electric Capital Corp.
Under the new terms, GE Capital has agreed not to enforce default provisions that could have been invoked because of the company's failure to make a July 15 interest payment on $100 million in senior subordinated notes (see related story on page 4).
Bush Inds. is another company that has faced some tough challenges of late. The company filed for Chapter 11 protection in March of 2004 as a result of mounting debt and slowing sales, but emerged from that protection in late 2004 with a fresh strategy and new ownership.
