Upholstery makers hope for more stability
With storms and price hikes, growth was hard to come by in '05
By Gary Evans -- Furniture Today, December 25, 2005
High Point — After a tumultuous year that included natural disasters and dramatic price increases, stationary upholstery manufacturers are hoping for more stability and growth in the coming year.
Generally, the upholstery business was soft and spotty in 2005, up one month and down the next. At year's end, sales were up less than most manufacturers had predicted a year earlier.
"We thought 2005 was going to be a great year," said Keith Feuerhaken, executive vice president of sales and marketing for The Alan White Co. "It wasn't bad, but it wasn't a growth year. It had all the underpinnings of an economy that told us that the housing boom was going to give us some strong business. But it didn't materialize for many reasons."
Those reasons included a spate of hurricanes that hit Gulf Coast states, including the devastating Katrina, the effects of which are still being felt. Katrina not only cut off business in three states, but put prices on raw materials in an upward spiral because of a shortage of petroleum-based products.
Despite all that, Feuerhaken said, "I still think there is an underlying strength in the economy, and maybe '06 will finally prove to be the year we have some success. Business has never been more challenging. But if a company is positioned to service its customers with quality and delivery, there's reason to be hopeful."
As for price increases, which drove retail sofa costs up by $100 and more, Feuerhaken said the issue is now "off the radar. It seemed like every month we had something to deal with, whether it be a natural disaster or inflation or foam. If we have another year like we had (in 2005) with all of its challenges, God help us."
Challenges manufacturers hope they don't see in the coming year include more natural disasters disrupting commerce, and major retailers like Rhodes and Levitz going bankrupt.
"In 2006, we do not need — repeat, we do not need — another bankruptcy," said Herb Hester, president of Caye Home Furnishings, which includes Simmons and Stratford. "We need to take a breather. We have to collectively, both manufacturers and retailers, learn how to make a profit for the products that we sell."
Hester noted that the stationary upholstery business (sofas and chairs), which Furniture/Today Market Research and Easy Analytic Software project to end up at $11.6 billion this year at retail, has been universally soft over the year.
He said that the category's 2005 numbers "are not terribly impressive in terms of incoming orders and shipments."
Pleased, but concerned
"Having said that, our business has been blessed because we sure aren't that smart," Hester added. "We are running ahead of the industry in terms of our performance, and we're very pleased with that."
The issue that concerns Hester the most is "the increasing cost of doing business, both at retail and wholesale. Both sides of the fence are going to have increases in the coming year. I don't think there's any question about that. It's out there and going to happen."
Meanwhile, he said, "Floor space is always an issue. But look, we have a very simple philosophy: We don't want all the space in the world; we just want the space next to ours."
At Lazar Inds., President Barry Lazar said the company would show modest gains when 2005 ends.
"We're ending the year with some growing momentum," Lazar said. "It's been a tough year. The middle of the year we didn't get much help from the retail side. We have a lot of initiatives and things going, so (in the) last four weeks momentum is building back and retail is growing."
It's possible in 2006, he said, for Lazar to achieve growth in the range of 3% to 5%.
"The big issue is, what is the impact of higher retail price points on our product? It's a huge cloud over us," he said.
"I don't know what the effect will be from offshore products," Lazar continued. "So far, I haven't heard that there's been any real noticeable increases from the Chinese or any of those folks."
He was gratified, however, that buyers have not complained openly about rising wholesale prices.
"They've never asked," Lazar said. "We had so little conversation about, 'What's your new price?' They understood everybody was going up, and that we were always going to be as competitive as we could be."
That restraint may be, in part, because "furniture is the best value there is in the world," Lazar said.
To illustrate, Lazar said he and his wife recently went shopping and saw a light fixture for a dining room made of iron with glass shades. It was $1,300.
"I said to my wife: We fight like crazy for a sofa to hit a $1,300 retail price point and it has wood, finished wood, legs, foam and springs. We get nervous when we go over $1,295."
Ken Church, president of Southern Furniture, said the company was coming off a "nice" 2005 going into the new year.
"The momentum has been sporadic all year," Church said. "We had a really strong first half and a suspect third quarter. And, all of a sudden, the fourth quarter is really strong again."
Not a huge year, but...
The recent momentum "should bode well for us in 2006," he said. "I don't see it being a huge year. We think we are going to grow in that 5% to 6% range."
Church expects prices, ballooned by raw material increases, to stabilize after the second quarter because of an increase in supplies. Meanwhile, retailers have been accepting of increases and surcharges imposed by manufacturers "because they knew we had no other place to go. The margins are so skinny now that it's embarrassing.
"The retailer knew this was not something that we fabricated or trumped up, trying to get a price increase," he said. "It was really to get our heads level with where we were a year ago."
One concern Church has is with "the changing landscape of the retail community — changing management structures and other factors."
And then there are imports. "That's probably one of my biggest concerns, seeing more of our retailers trying to do their own direct sourcing," he said.
Brian Lange, president of Best Home Furnishings, said, "We could have been better in '05. But we're up for the year. We will do better because the stuff we introduced in the fall is doing well. And programs we have with bigger accounts will kick in during 2006."
Lange said one thing in the industry's favor is that the price of gas is going down from the $3 peak it hit around Labor Day. "That's helpful. It might get the consumer to spend a little more money."
One thing for 2006 seems certain: There will be plenty more soft contemporary, apartment-sized lifestyle designs introduced to the consumer.
Caye's Hester sees lifestyle designs and smaller-scaled furniture coming on strong, particularly as baby boomers head for downtown condos.
"Manufacturers are going to address that more in the coming years," he said.
Alan White's Feuerhaken thinks the direction "will continue to evolve to a more transitional business. I don't think style categories are, as they were in the past, as meaningful or as well defined. The transitional category is happening faster and faster. That's where the consumer is today."
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