Credit managers expect more shakeout
By Joan Gunin -- Furniture Today, September 29, 2008
SAVANNAH, Ga. — The timing could not have been better — or worse — as the Furniture Manufacturers Credit Assn. convened for its 47th annual meeting here last week.
During the conference, the Dow stock index gyrated wildly, the feds bailed out Lehman Bros., Bank of America acquired Merrill Lynch, and the price of gold shot to an unprecedented one-day gain. Moreover, the preceding few weeks had brought a flurry of bankruptcies and closings in the furniture industry.
With all that — plus the uncertainty surrounding the presidential election a few weeks away — the credit professionals had difficulty predicting when business conditions might improve for the industry.
Newly elected FMCA President Dave Carpenter, director of credit services for La-Z-Boy High Point, gave a presentation citing statistics from the American Bankruptcy Institute estimating that U.S. bankruptcies were expected to climb from 597,965 in 2006 to an estimated 980,000 this year, an increase of 64%.
Similarly, Carpenter offered statistics that said the number of U.S. furniture retailers that had gone out of business would jump from 1,255 in 2005 to an estimated 2,000 in 2008, an increase of 60%. New furniture retail openings had shrunk from 446 in 2005 to 137 for this year to date, he said.
“This is skewed in the opposite direction from how we want it to go,” said Carpenter.
He added that just two of his top 10 retail accounts in 2000 remain in business today.
“The credit profession as it relates to the furniture industry is certainly challenged,” he said. “Credit availability is tight and slower consumer demand is restricting cash flow. A result is an increase in bankruptcies. We look forward to a reversing trend — hopefully in calendar year 2009.”
Among the other 30 credit managers in attendance, estimates on when conditions will improve ranged from as soon as six to nine months and as late as 2010.
“No one has a magic ball in this business,” said Ron Clark, director of credit for Bassett Furniture. “Not much will happen until after the election — no matter who is elected. It's a matter of getting people away from the TV and into the furniture stores to use their discretionary income.
“We need to find a way to increase cash flow and get consumers off the street and into stores spending money,” Clark said. “But we have not seen the end of the bankruptcies yet. With what has transpired this week, who knows what will happen next?”
Ron Teglas, director of credit for Lexington Home Brands, agreed that more retailers, suffering from a lack of cash flow and light traffic, will be pushed into bankruptcy.
“The shakeout is not over yet,” he said. “The housing market has to correct itself before anything happens.” He said he does not expect a significant turnaround until fall 2010.
Lisa Marden, credit manager for Stein World, said, “I've seen a great deal of bankruptcy movement already. I think there are one or two more critical players yet to come.”
But she said a turnaround could start as early as first quarter 2009. “A lot of what we are feeling now is uncertainty in government and how it is affecting everyone.”
Angie Mills, director of customer financial services for Bernhardt, said, “The latest drop in the stock market has left us all feeling a little queasy. From everything I am seeing and hearing, there is more to come. Previously, the longest (down) stretch we ever had was four or five years, but now we're up to seven or eight years. From a credit standpoint, it continues to deteriorate.”
Mills said a leveling off could begin in the next six to nine months. “I'd say the end of 2009 or early 2010 — closer to 2010.”
“Maybe we'll get a surprise with the election,” she said. “The actions the government has taken with bailouts could help the retailers and maybe help the manufacturers, too. I want to be optimistic.”
FMCA members also heard presentations from Judy Thompson and Diane Furr, lawyers with Poyner & Spruill in Raleigh, N.C. Thompson offered a timely how-to outline on filing proofs of claim related to bankruptcy forms. Furr highlighted the legal requirements needed to serve on a committee of unsecured creditors in bankruptcy cases.
In addition, Robert Shultz, a former credit manager turned consultant, offered time management skills designed to help combat job stress.
