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Industry deals with higher prices

Most increases ranging from 5% to 15%

Thomas Russell -- Furniture Today, April 22, 2008

HIGH POINT — Price hikes talked about before the High Point Market have came into sharper focus by the market’s conclusion — and the picture isn’t pretty.

Most increases fell within the range of 5% to 15%, according to industry sources interviewed at this month’s market. But increases ranged as high as 30% for some older items or those with price-sensitive materials like steel.

Manufacturers blame factors such as rising costs of raw materials including foam, wood and metal. Furthermore, the dollar has weakened sharply against various Asian currencies from the Chinese yuan to the Filipino peso.

Expensive oil also is driving up transportation costs. One retailer estimated that the cost of shipping a container from about $3,600 two years ago to $4,800 today.

Some cost issues are specific to China, which has been hit with rising wages and vanishing government subsidies geared toward exports. Even the government’s effort to limit pollution — particularly as the summer Olympics approach in Beijing — has affected the consistency of power supply available to certain regions, which shuts down production at certain times of the week.

“We’ve experienced price increases from the last quarter of ’07 through the first quarter of ’08,” said Kelly Magnussen, eastern regional sales manager for Magnussen Home, noting three price hikes on finishing materials in that period, for example. “Nobody is immune to the inflationary cycle of what we are going through. Everybody is in the same boat.”

“We’re getting price increases from most if not all of our suppliers,” said Hooker Furniture Chairman and CEO Paul Toms, adding that the pressures from suppliers have been mounting for four months. “We try to work with them to mitigate it.”

He said the company passed along a single-digit price hike March 1 on about a third of its line.

Furniture Brands CEO Ralph Scozzafava told Furniture/Today that the company has faced similar cost and pricing pressures, with price hikes varying from brand to brand.

Hammary Furniture raised prices earlier this year and will likely to pass along another hike on about 85% of the line launched before last October, said Randy Huff, vice president of merchandising and national accounts.

“Some items are going up more than others,” Huff said. “We are just trying to manage it the best we can. It’s tough because it’s all coming so rapidly.”

No retailer likes the price hikes. However, they have braced for them, knowing that inflation is affecting anything from gas to milk.

Manufacturers interviewed for this story said the issue did not hugely affect orders at the High Point Market. However, many retailers shopped harder for the best deals.

“We’re looking for buy downs, where you can lock in a lower price by committing to it at market,” William Blalock, of Canton, Ga.-based The Furniture Store, told Furniture/Today at market. “And we’re continuing to look for good value we can make money on.”

Vendors say that managing their sourcing will be more important than ever to avoid or minimize future increases. Companies will have to decide whether to accept cost increases, seek new source factories or countries, or simply drop items when they get too pricey.

“A low rate of sale and price increase are usually death blows,” said Chris Rayle, a product manager at Klaussner Home Furnishings, who said that prices on roughly 25% of his existing occasional line will rise 5% to 30% on May 1.

About 80% of that line comes out of China, Rayle said. While China will remain a source on certain items, the company may shift some production to Vietnam, where it already produces bedroom.

Hammary also may shift some items out of China, which now produces about 30% of its case goods. The rest is made in Thailand, Mexico, Vietnam and Indonesia. Company president John Labarowski said that China will remain a source on some items that can’t be duplicated in countries like Vietnam.

With a 65% price hike in raw iron and a 30%-plus increase in steel tubing in the past six months, the cost issue is hitting metal beds importers and manufacturers and others with metal-based lines.

On May 1, Coaster plans to increase prices on its metal beds from 7% to as much as 25%. Wood items will be hit with price increases typically under 7%.

“The more (metal) it had, the higher it went,” said Kerry Cochran, regional sales manager. “We’re not going to exit the category, but we may change the strategy somewhat.”

Powell Co. instituted a price increase amounting to 6% or less in early February on metal beds. This increase also hit metal youth beds and metal and glass dining.

Powell said it aims to minimize such increases by managing its inventories. It also looks at ways to redesign product to reduce costs or add value.

“Cost will always go up,” said Sean Slack, executive vice president of merchandising. “If you are not preparing yourselves for that, you will always be raising prices.”

James Riddle, managing director of case goods and leather upholstery importer Lifestyle Enterprise, said that just before market, the company imposed a 5% to 10% increase on about 10% of its wood groups. In leather, price hikes took effect across the board.

“Price hikes continue to sprout up and we do our best not to participate,” Riddle said.

But the sourcing strategy could change to get better deals. Today, Lifestyle is getting 60% less of its product from China than it did two years ago, with Vietnam now its biggest source country. It continues to eye new sources in Vietnam and Malaysia.

Riddle added that the company works hard at negotiating with its manufacturing partners, another way to keep a lid on prices.

This market it was able to run a price-oriented “Miracle” promotion, offering a five-piece bedroom set for $199 FOB Asia and a 3-2-1 contemporary bonded leather upholstery set for the same price.

Retailers “were looking for miracles. They were looking for something to get people into their stores,” Riddle said.

He added that the company has lowered its starting retail price point for a five piece bedroom in its Forbidden City line to $899 from $1,299 a year ago.

Kelly Magnussen said Magnussen Home plans a 5%-15% increase on certain case goods this spring. The company will seek to minimize future price hikes in several ways, including possibly moving some goods out of China to places like Vietnam.

“We are trying to use all the resources we have at our disposal and work smart and buy in the right ratios and the right amounts to service our customers,” Magnussen said. “We also warehouse all our goods, so we have to make sure we have the right goods at the right time.”

Not everyone is raising prices. Huntington Furniture, for example, said it has a close relationship with its source factory in southern China, which helps it manage and reduce costs where possible. The same manufacturer has a plant in Vietnam, which also helps manage costs. Huntington said it has no plans to raise prices any time soon.

New Classic Home Furnishings also owns its source factory operations in China, which it is consolidating into a single source operation that will be 6 million square feet when completed this fall. New Classic is seeing a cost savings from the consolidation, which has allowed it to reduce its pricing slightly this year while maintaining function and quality, said Robert Jarrard, sales manager.

Editor in Chief Ray Allegrezza, Staff Writer Jeff Linville and Senior Retail Editor Clint Engel contributed to this report.

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