Prices spiking this summer

Low to mid-single digit hikes on tap

Thomas Russell -- Furniture Today, June 21, 2010

HIGH POINT — Price pressures ranging from increased labor and raw materials costs to rising container shipping rates will force some companies to raise wholesale prices over the summer months.

A number of case goods and upholstery resources have confirmed plans to raise prices by low to mid-single digit percentages between July 1 and early August.

Richard Magnussen, CEO of case goods importer Magnussen Home, said that the company is instituting a low single-digit percentage price hike on July 1. This will affect existing goods launched before the April market.

"It's a very fair increase that reflects the cost of materials going into the product," he said. "We stay pretty close to the cost of raw materials."

Among the raw materials he cited was cardboard used in packaging, the price of which has risen about 20% in recent months.

Dan Angus, senior vice president of sales and marketing at casual dining and youth furniture importer Ligo Products, also cited the increase in cardboard prices as a factor in a 5% price hike his company is instituting July 1.

He added that the cost of pine solids used by his Asian source plants in various case goods is up 30% in the past six to eight months.

"Those are the kinds of things affecting the cost of the products," he said. "Right before Chinese New Year (in mid-February) is when the factories started getting these price increases."

Other wood prices also have risen in recent months. According to the trade association Appalachian Hardwood Manufacturers Inc., the price of Appalachian poplar has risen 34% since June 2009 while Appalachian red oak and ash are up about 30%. Appalachian cherry and hard maple prices have increased less, rising 6% to 9% over the same period, the group reports.

Lumber producers have seen cost hikes in areas including freight, insurance and government permitting and regulations, said Tom Inman, association president.

"All of this adds substantially to the cost of doing business and figures into the price for every board," Inman said.

Flexsteel is instituting a low to mid-single-digit price increase July 1. The higher percentage increases will hit items such as recliners and motion upholstery because they use more steel, a raw material whose cost has shot up as much as 30% in recent months.

Rising container shipping rates are another major issue for companies that source from Asia. Some industry sources say shipping costs have more than doubled in the past year. And on June 15, shipping companies added another $450 per container peak season surcharge.

Rob Woods, president of Leggett & Platt's Consumer Products Group, said container prices were a major factor in a 5% price increase on metal beds and adjustable beds that went into effect in May and June.

In June of last year, Woods said, the company was paying about $1,150 to ship a container from Asia to the West Coast. By this May, that had risen to $2,400, not including the new peak season surcharge.

Jack Richardson, president of case goods resource American Drew, Lea Inds. and Hammary Furniture, said that Lea and American Drew instituted a 4% to 5% price increase April 16 on merchandise launched before the April market. He said officials are evaluating an increase for Hammary as well, which could take effect as soon as early August.

Richardson attributed the hikes to factors ranging from rising packaging costs to increased labor costs in Asia.

Case goods importers Legacy Classic and Universal are instituting a price increase Aug. 1. Kevin O'Connor, President and CEO of parent company Samson Marketing, declined to reveal specifics about the increase, other than to say, "We are trying to be as sensitive as we can to the economic climate. We recognize this is a tough business environment. On the other hand, materials costs have increased in the Far East. It is a reality and is something that we know is going on across the industry without exception."

Other companies are still weighing their options.

Paul Toms, chairman and CEO of Hooker Furniture, said that the company hasn't increased prices yet but thinks such a move is inevitable.

"It is pretty certain we will have a modest price increase later this year," he said. "I don't see how you can go without it."

At Kincaid, officials said their inventories were high enough to avoid putting a price increase in effect over the summer but that the company may have to implement one sometime this fall.

Kurt Darrow, president of Kincaid's parent company, La-Z-Boy, said in a conference call with analysts last week that "there's no major component of our raw materials that hasn't had some type of increase. If the increases reach a certain level, obviously we will have to take some price increases to mitigate that."

He wouldn't specify what level of increase would force La-Z-Boy to hike prices, and said the volatility of raw materials pricing is making planning especially tricky. He said that plywood prices, for example, were up 40% in May over the March prices, but then fell by 15% in early June.

"We're flying blind in the back half of the year as far as raw materials costs," Darrow said.

Some are still formulating plans, but say that a price increase is necessary due to rising cost pressures.

Editor- in-Chief Ray Allegrezza, Business Editor Larry Thomas and Staff Writer Heath E. Combs contributed to this report.