Canadian factories ready to fight back
By Michael J. Knell -- Furniture Today, January 22, 2007
Toronto — Canadian furniture manufacturers took several body blows and a few left hooks to the jaw in 2006, losing sales not just in their home ring but on the road as well.
As they enter the ring known as the Canadian Home Furnishings Market here, they remain confident that new strategies put together in recent months will win them a few rounds on points, if not a TKO.
A look at the numbers could induce a weary fighter to throw in the towel, but the vast majority of factory executives seem ready, if not eager, to climb into the ring.
According to Statistics Canada, furniture factory shipments in all categories fell 7.2% to C$3.4 billion in 2006's first nine months, compared to 2005's nine months. Shipments to Canadian retailers dipped 4.8% to C$2.3 billion.
But shipments out of the country, the lifeblood of the industry for most of the past 15 years, plunged 11.8% to C$1.1 billion in the nine months. Over 95% of all Canadian exports of household furniture and mattresses are to the United States.
Furthermore, exports have been on a downward slide for about five years and, at the end of September 2006, accounted for 32.5% of Canadian furniture makers' shipments, down from 34.2% a year earlier. At their zenith, exports accounted for over half the industry's output.
Meanwhile, furniture imports in the 2006 nine months soared 16.3% to C$1.6 billion and now account for 41.2% of the apparent market for furniture and bedding in this country, up from 36.5% for the first nine months of 2005.
The major source country remains China, which is fast becoming Canada's most important supplier, particularly at promotional and mass-market price points. Other foreign producers are holding their own in some niche markets, such as the high end, where Italy continues to be a force.
Meanwhile, while Canadian manufacturers lose ground both at home and in the key U.S. market, Canadian furniture retailers, in the aggregate, seem to be enjoying moderate growth. The apparent market for household furniture and bedding in Canada — defined as total factory shipments, minus exports, plus imports, measured at wholesale prices, without freight costs and taxes — grew 2.8% in the first nine months of 2006, reaching C$3.9 billion.
Most factory executives believe their current crunch began in early 2003, when the Canadian dollar started to rise dramatically against its U.S. counterpart, driven by escalating world oil and energy prices.
"We've gone from 63 cents in early 2003 to over 89 cents in 2006. That's an over 35% gain," said Bob Tweedy, chairman of upholstery and occasional resource Sklar Peppler.
A robust Canadian currency, of course, makes furniture produced here relatively more costly in the United States, while U.S.-made goods are more of a bargain north of the border.
Many manufacturers point out that this challenge has been compounded by what they describe as the industry's fixation on selling to U.S. retailers. Numerous factories simply took their home market for granted, believing it was somehow secure and invulnerable.
"The fact is, the (strong) Canadian dollar has helped the importers, and many (domestic) factories are closing because they were not focused on the Canadian market," said Daniel Walker, president of causal dining specialist Bermex International.
The industry, in other words, failed to protect its home turf, while doing little to develop markets outside North America.
"The industry isn't working as an industry to combat these developments," said Laine Reynolds, vice president of sales for upholstery house Superstyle and chairman of the Ontario Furniture Manufacturers Assn.
"The statistics make it painfully clear that our industry is under attack," he continued. "It's time that we take action to improve our (domestic) market share. While it's a cliché to say this, we must recognize that our main competitors are other commodities such as plasma televisions. If we can increase our overall residential furniture market share, our entire industry will benefit — not just the manufacturers but the import sector as well."
This weekend's Toronto market may well be Round 1 in a new fight for floor space and renewed respect in the Canadian market.
While the details and priorities vary from company to company, most initiatives slated for launch this market have this common thread: They may be product-based, but they are not necessarily product-oriented. In other words, the key elements that differentiate one source from another are likely to lie in the areas of service, selection, customization, shorter replenishment cycles, faster deliveries and other measures that streamline operations and cut costs.
For many factory executives, the keys to a successful market are also the keys to continued prosperity.
"Our company is growing — at double digits in Canada — because of many key initiatives inspired by new customers," said Walker of Bermex. "We are making more product geared towards the Canadian customer, we are bettering delivery and offering more custom orders. We are making more investments in our own factories to keep pricing down, and bringing in better marketing tools and other customer-focused initiatives."
For Sklar Peppler's Tweedy, the key is a blended business model that reinforces and maximizes the company's strengths.
"You need a business model that takes advantage of the (strong Canadian) dollar in terms of its buying power offshore for components," he said, coupled with "the ability to deliver product fairly quickly so you can reduce risk for retailers who don't want or need to carry significant amounts of inventory. Our focus is on being such a supplier."
"There's a perception out there that Canadian manufacturers can't compete with the Chinese, but that's just not true," said John Mailman, Canadian sales manager for upholstery specialist Dynasty Furniture. "We feel we can not only compete but we can win."
Winning means adapting to the new reality of the North American marketplace. "China is good at mass production but not at tag orders," Mailman said, adding that in some markets — the Caribbean, parts of South America and the Middle East — Canadian product stacks up well, since "freight costs are such that it's as reasonable as shipping out of China."
Whether the industry can "go the distance" is difficult to forecast, as the orders haven't yet been written and Rounds 2 and 3, in Las Vegas later this month and in High Point at the end of March, have yet to be fought. But even if the road proves rocky, the fighter appears to be in pretty good shape both physically and mentally. Then again, so does his opponent.
