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Rollercoaster ride is about to get fun again

Jerry Epperson -- Furniture Today, February 11, 2011

Jerry Epperson An Insider’s ViewA friend recently said that the furniture industry has been like a rollercoaster. I disagreed, saying that they have regular upswings, are fun, and create an adrenalin rush.

To illustrate, we are in the middle of five months that were the most positive a year ago. The best months for our industry in 2009 were November and December, and the best months of 2010 were in the first quarter (January, February and March).

That by itself is one reason 2010 was so unusual. Our industry historically does 55% to 57% of its sales in the second half of the year. That did not happen last year. Look at the inventories - especially of wood furniture and leather upholstery. During the revenue free-fall in 2008 and most of 2009, inventories for almost everyone were too rich, especially for the level of business being done. Deep discounts - perhaps the deepest I have ever seen - were readily available. All this happened while our friendly banks were shrinking loans to almost everyone.

Then late in 2009 and early in 2010, the economy bounced upward and suddenly we had shortages. Yes, shortages. Since more than 70% of wood furniture and 35% of upholstered furniture (including 75% of leather) is imported, it took a while for the factories offshore to gear up and refill the pipeline - and did they gear up!

Furniture imports by quarter Change, year over year
	Wood	Upholstery
Q4, 2009	(18.9)%	+3.7%
Q1, 2010	+7.1	+34.4
Q2, 2010	+16.6	+41.9
Q3, 2010	+26.4	+45.1
Source: U.S. International Trade Administration

After shortages early in 2010, the inventory pendulum has swung again to having excesses on many levels. This probably means discounting on older goods at a time when more current imports are under upward pricing pressure for higher freight costs, currency changes, labor costs and other issues.

All this tends to make the low inventory, just-in-time model used for mattresses look even more attractive.

By the way, you retailers that like these deep discounts, remember a competitor might be getting something that is in your warehouse cheaper!

The difference this time is our outlook. The recent Las Vegas Market was upbeat and encouraging, more new home furnishings stores are opening, consumer confidence just took a positive bounce, consumer debt is down while savings are up, and the stock market is stronger on good profits. After a dismal year in 2010, many expect housing to begin its long recovery this year with great values and cheap mortgages. Even some banks are showing signs of liking us again.

Finally, the coming months in 2011 will be compared to the progressive weakness experienced last year. Our industry would have its own reality television show but the title "Survivor" has been taken.

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