Brace for higher prices
Companies eyeing 3%–6% hikes
By Thomas Russell -- Furniture Today, April 7, 2008
High Point — The already tough business of selling furniture is about to get a little tougher.
While retailers are on the lookout this market for even sharper price points to help them cope with one of the biggest industry slowdowns in recent memory, they are likely to see an opposite trend beginning to take place — price hikes.
A number of furniture sources interviewed by Furniture/Today said they plan to announce price increases between 3% and 6% this week.
Others are weighing their options as their manufacturing partners continue to pass along cost increases of their own on a monthly, weekly and even daily basis. These sources said they likely will announce their plans during or soon after market.
"We are assessing everything right now," said Dave Urbanick, vice president of sales for curio and display cabinet specialist Philip Reinisch, adding that costs have been difficult for manufacturers and importers to control. "We have not decided (about price increases), but it's inevitable with the severe costs and upturn of the price of a barrel of oil, labor and raw materials. There is a tremendous amount of pressure."
In some respects, price hikes also shouldn't surprise retailers. Some companies implemented small increases last year.
The difference now is more and more companies are acknowledging the issue.
Upholstery manufacturers said that the cost of everything has gone up, from leather to thread.
"It's horrible," said Michael Kirby, a sales and marketing exec with Huntington House. "We get hit pretty hard."
For the upper-end manufacturer, it "has been very difficult for the last two years, more so for the last six months" as oil prices have risen rapidly. And about six weeks ago, fabric prices shot up dramatically, he said, "which threw us in a tailspin" and required company reps to scramble to change price grades in stores to reflect the price difference.
"If we decide to have a price increase we carry it out over a period of time that is reasonable," Kirby said, "so our dealers know when one is coming and know to be prepared for it and retag their floors. We don't get that flexibility on the manufacturing side. In the last year-and-a-half, it has been very typical to pay something on Friday and on the same day get a piece of paper faxed to us that says on Monday of next week this will be your new price."
Tom Jordan, president of upholstery manufacturer Michael Thomas, described increases on raw materials as "ample," reflecting the cost of oil and increased demand. "Everything we purchase has had an increase in the last six months — fabrics, steel, down, foam, thread."
Among the sources that have told Furniture/Today of their plans to raise prices this market or soon after are Ashley, A.R.T., Fairmont Designs, Magnussen Home and Ultimate Accents.
Companies that raised prices between January and early April include Aico, Pulaski, Sauder and Shine Home.
There are many reasons for the proposed increases, not the least of which is rising fuel and related freight and transportation costs in shipping goods from Asia.
The price of oil alone rose from about $70 a barrel last June to $106 a barrel in late March, according to figures compiled by logistics service provider Globe Express Services. Those increases have led to fuel surcharges that could add nearly $800 to the cost of shipping each container from Asia to the West Coast. That is in addition to a proposed rate increase of $400 to $600 per container shipped to the West and East Coasts, respectively, to take effect May 1.
Rising diesel fuel costs also have contributed to rising trucking costs. According to the Energy Information Administration, diesel has risen from $2.40 per gallon in January 2007 to $3.95 per gallon in late March 2008. That has effectively doubled the level of fuel surcharges that trucking companies charge for hauling goods along the nations' roadways, the EIA said.
Rising fuel prices also affect any materials used in furniture that are petroleum based, including foam and finishes. One industry source estimated that the cost of paint alone has risen 10% in the past year.
Other material prices also have risen significantly over the past year. Ashley Furniture estimated that iron ore has risen 65%, which impacts the costs of mechanisms, springs, and drawer glides for recliners and other motion furniture as well as upholstery and case goods.
Randy Ford, president of Leggett & Platt's Home Furniture Components Unit, estimated that rising iron ore costs are resulting in a 16%–20% increase in the price of components to its customers, a figure that could go as high as 30% between the April and October markets.
L&P already implemented an increase on steel in late February and March and plans a third increase this month on the price of wire.
"It is a function of the dollar and the oil markets," Ford said about the price pressures.
"We are keeping our customers informed of these pricing issues, but it is important that everyone involved is aware of the real issue we are facing. This is strictly a pass through. It is too big to be absorbed."
Another source at Leggett & Platt estimated the cost of steel tubing for items such as metal beds has risen 30% since last September.
The currency situation by itself makes goods from China and other regions more expensive for the U.S. consumer. The value of the Chinese yuan has risen 6.5% against the dollar since last September.
"Raising prices goes against everything Ashley believes in, yet now we are faced with the necessity," Ashley said in a March 20 letter to its dealers...However, the crush of increased costs on our materials has now reached the point, despite our best and most diligent efforts to offset those increases, where we cannot continue to reliably supply you without raising prices."
Ashley's price increase takes effect April 14, the same date as a proposed price increase at case goods importer A.R.T. Furniture.
A.R.T. and others point out that cost pressures have been mounting and that they have already absorbed some of those costs through increased efficiencies and product reengineering.
All acknowledge that the increases are coming at one of the worst possible times, given the difficulties at retail. Still, suppliers say they must pass some of those costs to stay viable.
"Over the last six to nine months, we've known it has been coming, but obviously with the business climate the way it was, everybody tried to hold off as long as they could," said Bill Sibbick, A.R.T.'s vice president of sales, noting this is the first increase in the company's four-and-a-half-year history.
Sibbick attributed the situation to a decrease in a Value Added Tax rebate the Chinese government has passed along to exporters as well as increases in raw materials. In a letter to dealers, he said that pine and ash alone recently have risen 12% and that wood prices are expected to rise as much as 20% for the balance of 2008.
Other materials, such as medium-density fiberboard and particleboard, also have gone up. Kevin Sauder, president of Sauder Woodworking, estimated that particleboard rose 10% to 15% over the past year, which led to a price hike on the company's line in January.
Companies like Fashion Bed Group, CR-Home and Universal are still weighing their options. But all acknowledged they expect some type of price hike in the near future.
"The 'when' is up for debate, but the 'if' is not up for debate," said Universal President and CEO Randy Chrisley, noting that the company plans to announce price adjustments at market that would take effect mid-year. "In this retail environment, it isn't easy to raise prices, but the reality is that it has to happen."
| Acknowledgements | ||
| Staff writers Heath Combs, Gary Evans, Joan Gunin, Jeff Linville and Larry Thomas contributed to this report. | ||
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