Price increases worry buyers
Most are cautious
Clint Engel -- Furniture Today, October 18, 2005
HIGH POINT -- Retailers are coming to market with mixed takes on recent business but unanimous in their concern over expected price increases.
The price hikes stem in part from a sudden shortage of foam used to make upholstery and bedding, the result of Gulf Coast hurricanes and the related production disruption of a chemical used to make the foam. Rising oil and gasoline prices also threaten to put additional pricing pressures on furniture and its components.Unfortunately, rising gas prices also are putting new pressure on consumers’ discretionary spending, and retailers have varying opinions about how easy or difficult it will be to pass on the added product costs.Some say that $299 and $399 starting price points for fabric sofas finally may disappear.Whether or not all that will put a damper on buying here remains to be seen. Several retailers said last week they have aggressive shopping plans regardless, and one said he had a big open-to-buy position in upholstery.
A continued rise in demand for contemporary and transitional looks and leather upholstery are leading some retailers to focus on those style and product categories. And while upholstery pricing is bound to be the talk of this market, case goods will get attention, too, with retailers looking for more upscale looks and value pricing in a category dominated by Asian imports.Tommy Miskelly, partner in Jackson, Miss.-based Miskelly Furniture, said he’s concerned that many companies will use temporary pressures as an excuse to raise prices permanently.“Manufacturers have held their prices for a long time, so a small price increase won’t kill us,” Miskelly said. “But when they start doing it for the wrong reasons, that’s when we’re going to get into trouble.”And once price increases are in place, he added, “I’ve haven’t seen anybody back one up yet.”Still, Miskelly said he’d rather see specific items increase than see an overall surcharge on shipments, which the retailer recently received from one supplier. “When they add a 2% surcharge on the (whole shipment) you can’t comparison shop,” he said. “You kind of just take that; it comes off our bottom line.”This issue aside, Miskelly’s business has roared back after Hurricane Katrina knocked the wind out of an important Labor Day weekend, shutting down its two stores. For the year, sales are running ahead nearly in double digits. Miskelly sees no end in sight, thanks to a strong local economy, an expanded and remodeled main store and an influx of hurricane victims who have moved to the central Mississippi area to start over. The company will be shopping for more contemporary and transitional looks in case goods and upholstery, he said, aiming to broaden its selection at the $499 to $699 sofa price points, as well as starting prices in the hot leather category.In case goods, Miskelly is hoping to bring in more upscale, imported looks at still lower retail prices, including dresser, mirror, queen bed and nightstand groups for $1,999. The store already has the “wow factor” in bedroom at the $2,499 and $2,999 price points, but “if we could hit $1,999, I think we could really get some velocity,” he said.Keith Koenig, president of Fort Lauderdale, Fla.-based City Furniture, will pay attention to contemporary styles at market.“We’re under-serving that segment of the market, and it’s growing rapidly in South Florida,” he said.Modern product that 19-store City ordered at the April High Point market hasn’t arrived yet, which brings up one of the big challenges Koenig said he and other retailers are facing: too many market cycles (two per year in High Point and now two in Las Vegas) and longer lead times for initial deliveries.“We bought a ton in April that won’t be here until November, December and January,” he said. “You tell me how I deal with what I need to buy (this time).”Indeed, Koenig said a busy work schedule might not allow City buyers to spend any time in Las Vegas in January. “It just takes too much time to assimilate new product into our lineup,” he said. “To keep looking at new product before we’ve got what we bought one or two markets before, is bizarre.”It’s gotten to the point, he joked, where City thinks about dropping something before it even hits the floor.
Like Miskelly, City expects to see price increases in upholstery here, although it’s heading into the fourth quarter well stocked from all suppliers and in a good position to “weather any kind of storm.”“But costs are going up and I think you’ll see price points move up in all ranges,” Koenig said. “The real value side of the marketplace is going to feel the pinch the most. For sofas in the $399, $499 price range — with all raw materials going up and all freight going up, it’s nearly impossible to keep those price points.”And it’s not just the shortages and skyrocketing prices of foam that are pushing up upholstery prices. The lingering impact of the Gulf hurricanes and rising oil prices are much broader, said Morty Seaman, partner in Seffner, Fla.-based Rooms To Go.Seaman, whose family has an operating interest in upholstery producers Corinthian and H.M. Richards, said that in the past two and half weeks, foam suppliers have raised prices 25% and now say another 50% increase will be coming after Nov. 1. He said he believes there is some gouging going on.“This affects foam and the plastic bag that wraps the sofas. It affects bedding,” Seaman said. He predicted that a number of small manufacturers won’t get their foam shipments and that small retailers relying on these manufacturers “will be in disastrous shape.” Also rising in price because of the hurricanes and reconstruction, he said, are oil, plywood, steel, transportation and fabrics made with petroleum products. Keeping employees in the upholstery factories will be a problem because other lucrative jobs are cropping up from the massive reconstruction efforts in New Orleans and elsewhere, he added.Seaman predicts that within six months, retail and wholesale prices for promotional and midpriced upholstery will rise a minimum of 15%. But there’s some good news here, he added. Rising prices essentially will reverse the trend of price deflation that has bedeviled the industry for years, with cheaper goods from Asia cutting into the gross dollar volumes and profits of both retailers and wholesalers.“It will benefit the retailer if they have the intelligence to realize they should be getting more (for furniture),” Seaman said. “After all, isn’t furniture the best value out there for consumers?” Miskelly said. “Paying just $399 for a nice sofa is a little on the ridiculous side when you’re paying $40 to fill up your car.”But some say price increases could prove to be a hard sell. Ann Navarra of five-store Jerome’s in San Diego said consumers faced with other rising prices could opt to defer furniture purchases. “I’m sure we’ll absorb (some of the increase) because we have to be competitive,” she said.Hershel Alpert of Alperts in Seekonk, Mass., agreed, noting that furniture “is a highly postponable purchase.” He said this could be a tough winter for sales anyway, with higher gasoline and home heating costs. “We’re going to have to be very aggressive to entice the consumer to spend money,” he said. “The question is, What is the consumer going to do? Really it’s a delicate balance right now.”Alpert and others also noted the foam issue doesn’t appear to be affecting Asian upholstery producers, which could lead to an acceleration of their U.S. penetration.Jake Jabs, president and owner of the 10-store, Englewood, Colo.-based American Furniture Warehouse, which also owns the Loren Mitchell upholstery manufacturing plant, said he has seen some of the first price increases recently from its largest supplier, Ashley, which raised prices in the range of $2 to $5 per item.
But unlike some retailers, he said he believes the increases are temporary and that prices will start heading back down in 60 days or so. “We’re going to try to absorb them,” he said, at the store as well as the factory, which he said is more of a hobby that a profit center. “Some retailers will take the opportunity to raise prices, but my mentality is to try to sell as cheap as we can.” Despite the expected increases, Jabs and his buyers are coming to market with one of their biggest open-to-buys in upholstery in recent memory. American’s third largest supplier, Corinthian, recently dropped eight SKUs American was carrying, and Jabs will look to fill the hole with step-up goods, including sofas at $599 to $799.
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Price increases worry buyers
Oct 30, 2005
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