Forget fear factor, dare to be different, make money!

By Furniture Today Staff -- Furniture Today, July 22, 2007

I left the retail side of the furniture industry four and a half years ago, and things had already begun to change.

As a promotional to midpriced retailer (Seaman's Furniture), we had started with no-no-no promotions years before. We trapped ourselves into believing it was the only way we could get customers into the store and sell them, and even left our pricing the same and took the hit on margin. The smart ones have raised margins since then to compensate for the free no-no's.

As an industry we've always looked for cheaper prices, but at what cost? Remember when as an industry we broke price on leather sofas, advertising them at $999 (wow)? The mystique of leather and the high margins that went with it was lost forever. Today, the advertised price is $599.

This is but one example of how we chase the cheapest price, believing we will do more business by doing so. Everyone has been complaining over the past few years about how poor business is in the retail environment.

Is it strictly poor business or poor price points? Can you imagine how much better the retailer would be doing if he was selling the same number of leather sofas at $999 instead of $599 every time he advertised it?

This is but one category, yet this scenario is going on in all categories. Stop and think where we would be as an industry if we sold 10% fewer units than we did last year (an arbitrary number to account for a poor business climate), yet sold items at prices where they were five or 10 years ago.

Do you think you'd be making money? You bet you would. Do you dare to think of more gross dollars, more profitability with a properly merchandised floor, where you can offer consumers a better alternative to the advertised item?

However, the fear factor has changed us all. No one (retailer or manufacturer) wants to be the leader and dare to be different.

The styles are getting so generic that we cannot differentiate the good, better or best any longer. The features are fewer and we have forgotten benefits. We have product coming out of Asia that would allow us to make so much more money because of the better construction, finishes and packaging, but we don't take advantage of it.

We have more negotiators today than merchants. We have people out there who are afraid to make decisions because they're afraid to make a mistake.

We are involved in a fashion industry that can and should have excitement, yet we don't react to this. It's time for a change, people!

There are opportunities for everyone, if only we take stock in what we're doing, selectively change our business model and have fun doing it. There are alternatives!

Tom Martinez, Oak Furniture West

Price floors: Everything changes, stays the same

As reported in Furniture Today's July 2 issue, the Supreme Court announced with much fanfare its decision to overturn a century-old ban, the so called Dr. Miles rule, on minimum price restraints. Pundits across industry lines, as well as several dissenting Supreme Court justices, predict and fear economic upheaval, mass closings of discounters and small retailers, price gouging, and plummeting consumer confidence.

So why is our industry responding with a collective yawn?

Manufacturers have long claimed that retail price maintenance, or RPM, is essential to bolster brand image, avoid channel conflict and allow retailers to maintain margin and thus invest in technology and pre- and post-sale customer service. RPM is good for the industry and the public, it is argued, because it punishes "free-riding," the ability of discounters and online sellers to unfairly benefit from expensive point-of-sale customer assistance offered by full-service retailers.

The unspoken truth among manufacturers and retailers, however, is that RPM was openly being practiced under different guises before the recent ruling.

For example, the Colgate decision, decided by the Supreme Court shortly after Dr. Miles, carved a large loophole. A manufacturer was allowed to inform a retailer of an expected minimum resale price and refuse to supply a retailer that refused to comply, so long as the manufacturer and retailer did not agree on the price. Another means of practicing RPM was the use of minimum advertising price policies, where the retailer was allowed to sell at any price as long as a price below a minimum resale price suggested by the manufacturer was not advertised to the public.

Some retailers have remarked that they have voluntarily complied with suggested pricing in the past because they like to carry the brand, the brand sells well at or close to the suggested price, customers appreciate the full service provided, and manufacturers offered relief from suggested pricing for discontinued product or overruns. Other savvy retailers took pleasure in finding ways to circumvent RPM policies through various promotions and indirect discounts. It's also true that RPM has never been effective against a highly influential segment of the industry — the large discounters — because of their purchasing leverage with respect to manufacturers.

Our industry also recognizes that RPM may only be effective for product with strong brand identity with differentiating qualities. The allure of substituting imports for manufacturers that abuse RPM makes such policies a risky marketing proposition for many manufacturers. In general, RPM will not hinder competitors from entering the market and grabbing market share from unwary manufacturers.

Although the recent ruling removes some risk that the manufacturer will inadvertently impose an illegal price fixing agreement, there are still pitfalls to avoid. In place of the per se ban on RPM previously imposed by Miles, manufacturers' actions will be governed by the Rule of Reason, which allows the court to weigh all of the circumstances, including the manufacturer's market power and the anticompetitive nature of its practice. States may also interpret their own antitrust legislation differently and trap unsuspecting manufacturers. Finally, selective application of RPM policies may open the manufacturer to violation of other discrimination and anticompetitive rules and regulations.

So perhaps the adage that "everything changes and stays the same" is no more true than in the present case. Despite the ruling from afar by our esteemed Supreme Court, manufacturers and retailers in the marketplace will continue to jockey, sometimes as partners and sometimes less so, to purchase and sell furniture and further their respective interests.

Y. Jerry Cohen, attorney, Cohen Tauber Spievack & Wagner, New York

NFBA benefits more than those in need

If you are in business, you will invariably be asked, "What's in it for me?"

All businesses must put themselves in their customers' shoes and answer that question for our customers. Manufacturers promote their products' features, style and costs. Retailers talk about service, selection and pricing.

The nonprofit sector is a bit different. The answer is almost always "because it's a good cause, and I want to give back to less fortunate people." But the furniture industry has a nonprofit that also benefits your bottom line, protects the environment and engages your customers.

Comprising a network of over 60 furniture banks in America, the National Furniture Bank Assn. collects over 1.2 million pieces of used furniture each year and gives it to children and families in need. This furniture collection and distribution service is called Help1Up.

Do you support this crucial industry charitable effort? If not, here's what's in it for you.

It's a good cause, and you have a responsibility to give back to less fortunate people. You'll eat dinner tonight with your family while sitting at a table. You'll put your kids to sleep tonight on a bed. For hundreds of thousands of families, this isn't the case. They'll eat dinner and put their children to sleep tonight on the floor. Women and children escaping domestic violence, working families below the poverty line, and victims of natural disasters such as Hurricane Katrina have to choose between buying food and saving money for furniture. If you become a Help1Up sponsor, more kids will sleep in a bed — many for the first time in their lives.

You'll demonstrate to your customers that you care about the environment. The increasingly "green thinking" public appreciates businesses that are making a difference. Furniture banks keep thousands of tons of perfectly usable furniture out of incinerators and landfills every year.

Consumers are taking notice of furniture industry companies — both retailers and manufacturers — that support Help1Up. Sponsoring retailers have their store locations listed on Help1Up.org via a "find a participating retailer" ZIP code search. Also, a manufacturers and service industry sponsor page will launch next month, including a hyperlink to supporters' Web sites.

Unlike charities with budgets into the millions of dollars, the NFBA doesn't have a fundraising budget. They use sponsorships to open new furniture banks and increase the service capacity of existing furniture banks.

Our entire industry benefits when the NFBA opens more furniture banks. Consumers have an easy, free and socially responsible furniture removal service that helps people in need. And then there's room in our customers' homes for a new furniture purchase.

I believe every company in our industry should support this effort. But don't just take it from me. Ask any other members of the board — Sharron Bradley, executive director, Western Home Furnishings Assn.; Steve DeHaan, executive vice president, National Home Furnishings Assn.; Mary Frye, president, Home Furnishings International Assn.; Kathy Parks, executive director, International Home Furnishings Representatives Assn.; and Ray Allegrezza, editor in chief of this paper. These folks and every other industry association also have endorsed the NFBA.

So give back today to children and families less fortunate than your own. Together, we can and are making a difference.

Don Lawrence, executive director, National Furniture Bank Assn.

Loyalty to employees is core value at Karges

I know we are a very small part of this furniture industry.... Still, like every other U.S. manufacturer, we have suffered the past five years, primarily as post-9/11 trauma. In some of those years we have lost serious money (serious to us, anyway), and our board of directors has clobbered us for not laying off workers or taking other drastic measures.

But we resisted. These people can't be replaced! And now, thankfully, this year is starting out differently....

January saw the largest influx of orders Karges has experienced since 2001. New orders year to date are up 33.5% over 2006. As our lead times are generally about four months, it will take us a while to get shipments geared up to this increase, but it will happen.

Like others, we have spent the past few years struggling with slow sales; unlike others, we have kept approximately 90% of our extremely skilled workforce and taken other measures such as shorter hours, no overtime, less travel, less advertising, fewer purchases, etc.

Also unlike others, we have never considered moving our production to another country. Instead, we have reinvested in our 1890s-era factory with new dust collection, forced-air gas heating, a new Costa sander, new Komo CNC router, new IR oven, new molder, new glue wheel and new drill press.

We believe that by virtue of sticking to what we know and do best, our reputation has grown, not only in the U.S. but remarkably overseas. The present combination of backlog and shipments for 2007 shows export sales at a whopping 20.2%, as big a portion of our business as we've ever seen. Domestic business has also increased, both in areas that are usually strong and in some new territories, i.e., the Midwest and South.

So what's different about Karges Furniture? Really not that much. We're an old family business, making furniture in a basically old-fashioned way, much like the Michigan manufacturers of years ago.

Yet the biggest difference we can see is that, when the vast majority of U.S. furniture companies are bringing in much cheaper furniture from China, Vietnam and other countries, our finely crafted, beautifully finished goods stand head and shoulders above other products. Yes, they cost more, but we all know you get what you pay for. Yes, there are huge headaches to manufacturing in the States, but there are huge headaches to importing as well.

I should also point out that we know increased sales cannot be equated with increased profitability. That's a whole other realm which requires a careful balancing act on our part. As we are (old fashioned, again) self-insured, still with a $200 deductible 80/20 plan and excellent prescription coverage, our overall health affects our profitability as much as our internal efficiencies and the quality of materials from suppliers.

But it's a battle worth fighting. Worth it for the 90 families that count on Karges for their livelihood, and worth it for the furniture industry in America. The demise of so many factories countrywide will, sadly, eventually lead to the demise of the U.S. furniture worker in general. We like what we do. We like knowing that what we make will be around for many years to come, a family's heirloom. We like having jobs that make us a decent living — not great, but decent. And we're proud of our product. It's really beautiful.

Joan Karges Rogier, Karges Furniture

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