‘Fiscal cliff' adds caution to factors' forecast
Heath E. Combs -- Furniture Today, December 19, 2012
Because housing is ticking up and unemployment is moving down, the home furnishings industry is getting busier. According to the latest statistics, U.S. residential furniture factory orders were up 5% over last year through September, and retail sales at furniture and home furnishings stores were up 8.4% for the first 10 months.
"The third quarter for us in the furniture industry was the best from a new business standpoint that we've had in several years," said Michael Hudgens, senior vice president and business development manager at CIT Trade Finance, a factoring firm that, among other services, purchases accounts receivable from suppliers.
The retailers now in business are the survivors, Hudgens said, and they're doing better this year, even if marginally. CIT is seeing improvements in pay history and in their financials, he said.
"Even with all the other potential problems, as long as we don't go into recession, we tend to think, and the folks we do business with think, that furniture is going to continue to grow at a little bit better of a clip than the economy," Hudgens said. "We just don't foresee any major problems with furniture retailers."
He added that estimates for the U.S. economy are for growth of 1.5% to 2.5% in 2013. But there's still a lot of concern - such as worries that tax hikes and spending cuts mandated by the "fiscal cliff" threat could push the country back into recession.
"There's this fear that if we go into another recession all bets are off. On the other hand, housing is coming back a bit. So, if housing is coming back a bit, that's good for furniture," Hudgens said.
Freddie Mac reported this month that property values should strengthen in 2013, with most U.S. house price indexes likely rising by 2% to 3%. Meanwhile, unemployment edged down to 7.7% in November.
Howard Tolsky, president of DSA Factors, said his company's business in the last five months is up about 5% from 2011.
While much of that's attributed to new clients, there also has continued to be significant growth in DSA's factoring volume associated with accessories, rather than upholstery and case goods, he said. The average accessory order size is about $400, he added.
But like others, he said consumer and business confidence could be negatively affected by the fiscal cliff scenarios.
"Unfortunately when the media starts reporting that we're going to go into a recession then everybody gets nervous about their jobs and their future and they do hold up on spending," Tolsky said. "If something does not get worked out fiscally and then we start hearing negative things in the economy, then people may start worrying about their jobs and holding off on buying. But we need a crystal ball to figure that one out."
Furniture retail sales are stabilizing and there are fewer "chronic" past due receivables in the industry, according to Malcolm Ferguson, Charlotte regional manager for Capital Business Credit. He said the surviving retailers have stronger balance sheets, with underperforming stores having been weeded out over the past few years.
CBC also has been working with clients to better manage collection processes, Ferguson said.
But while it is seeing increases in factoring volumes and retail sales have stabilized, the company is cautious about 2013.
CIT's Hudgens said that while most of his company's clients are upholstery companies and some are case goods suppliers, some are doing better than others.
"Our clients are both domestic manufacturers and importers and it's not like the promotional folks are doing great or the stationary or the motion or importers versus domestic - it could be anywhere," he said. "Everybody seems to be up a little bit, some are up a lot. It's really more of who's got the right product at the right price and is selling to the right customers."
Gains can be attributed to factors like suppliers benefiting from sales declines at competitors or continuing growth in nontraditional furniture channels, Hudgens said. In online retail, for example, the barriers to entry haven't been too difficult, he said.
"The online retailers are seeing that it's pretty easy business for them. They're using white glove service for delivery. They bring this product to various warehouses around the country. They get an order and somebody comes, picks it up and delivers it for them," he said.
"Everyone's figured out it's a nice clean way to do business and that's why the growth is there. And yes, it still is growing quite rapidly," Hudgens said.
Stefan Witcher, an account rep for Eagle Capital, said retail has shown some small improvement and product orders are up as is container volume.
Eagle is seeing an uptick in its smaller client base due to tightening of credit over cash flow. Suppliers doing well are those that offer retailers bulk pricing to launch programs in return for payments within agreed-upon terms, Witcher said.
The lower tier of factored orders is currently about $7,000 a truckload or about $12,000 for a container. Average truckload orders are about $12,000 to $14,000 and a full container will be about $25,000.
Sources also said furniture sales could get a bump from Superstorm Sandy in 2013. Rebuilding will occur and furniture sales could show gains from the storm starting in the next year, CIT's Hudgens said.
"It's a longer-term prospect," he said, saying that at some point those rebuilding have "got to buy furniture."
DSA's Tolsky agreed there will be an increase in furniture and bedding sales due to Sandy, leading to an increase in volume once insurance checks are distributed. That could start as early as January.
"Disaster can sometimes do some good for the economy in the long run," Tolsky said.
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