Volatility Riles Industry
Ray Allegrezza -- Furniture Today, August 24, 2011
HIGH POINT - The past two weeks were not for wimps. With the Dow up and down like a punch-drunk fighter and concerns over the lowering of the U.S. debt rating and the possibility of a double-dip recession rising, furniture industry leaders were understandably watchful.
Even the promise last Tuesday by the Federal Reserve to extend low interest rates until 2013 failed to slow the market's rollercoaster ride. While the Dow spiked almost 430 points on that news, it fell some 429 points the next day.
The fact that this came on the heels of an 11th-hour debt-ceiling agreement by Congress did little to soothe already frayed nerves.
In light of this ongoing financial mayhem, Furniture/ Today interviewed leading retailers, suppliers and industry analysts to get their take on how what's happening on Wall Street may affect home furnishings sales on Main Street.
While many felt it was too early to tell, they did agree that anything that makes an already cautious consumer even more skittish is problematic.
"Anytime a consumer feels that his or her net worth is at risk, the brain tells that person to slow down consumption and take a few steps back," said Jim Ziozis, president of importers Linon Home Décor Products and Powell.
Anything that affects the financial sector and credit availability is "important for the 40% to 50% of our product that's financed," said industry analyst Jerry Epperson of Mann, Armistead & Epperson.
He added, "I look at all this negativity as being largely unnecessary and largely political. And I hate that it happens.... There are so many people to blame you can't focus on any one."
Bill Kemp, president of case goods importer BK Home Furniture, said it's too early to see the effects of recent stock market fluctuations. But he believes that combined with the political situation in the U.S., it has created more uncertainty for consumers.
"Uncertainty is the worst thing for the economy," he said. He added that when consumers "see the market go down and the effect that has on wealth, people will get tighter with their money and that certainly doesn't bode well for a disposable purchase like furniture."
Keith Koenig, president of Fort Lauderdale, Fla.-based retailer City Furniture, added, "So far we can't tell that we have felt anything from the market's gyrations, but you can bet if we see a real double dip, and I am betting against that, we will feel it."
Even so, he said that his business is, "on plan with a nice increase, but that could change tomorrow."
Sherry Sheely, co-owner of Sheely's Furniture & Appliances in North Lima, Ohio, said she hasn't seen any repercussions to recent stock market fluctuations and the S&P downgrade yet. But she is concerned about what could happen if this environment persists like it did in October 2008, and how consumers may react when they get their August or September portfolio statements.
If that's the case, "I think it will dramatically impact the furniture industry, the auto industry and housing, which already is devastated," she said.
Jeff Selik, president of the contemporary retailer Hillside Furniture in Bloomfield Hills, Mich., said he hasn't seen any negative effects so far.
"As much as I follow the market for my personal investments, I try not to let it affect the overall attitude or atmosphere in the showroom," Selik said. "When the market soars or when the market plunges, we're going to do what we're going to do. We try to almost operate in a vacuum. Whether its weather or the economy - these are things the media will capitalize on and bring to the public eye, but people will still need furniture. People are still going to live their lives."
He said business for Hillside has moved "continuously upward for the past four years."
The people most impacted by the recent dive in the stock market, like the last one in 2008, unfortunately are those preparing to retire and cash out, and Selik said he does feel for them. But Hillside is selling a much broader base of consumers, he added.
"The people buying furniture from me aren't using their 401k money," he said. "This isn't affecting the money in their pocket right now.
Industry real estate expert Julius Feinblum of Julius M. Feinblum Real Estate in Plainview, N.Y., said stock market gyrations affect business "because people act emotionally based on headlines and based on their actual net worth dropping."
He said he believes those companies currently embarking on new store plans will go forward with them but at a slower, more cautious pace. He noted that market conditions, while tumultuous, also create opportunities as landlords become more flexible in order to get deals done.
Feinblum said it's too early to tell how retail business will be affected, but noted that the conditions leading up to this month's stock market dive are different from those of 2008.
"This time, so far, we don't have banking failures," he said. "We don't have a lack of liquidity situation. It's just a definite stock market issue (affecting net worth). That's a big difference."
Retailers, especially smaller stores, are getting hit on all fronts, according to Dan White, president of mid-priced upholstery maker Norwalk Furniture.
"I think with the uncertainty of the financial management in Washington we're all watching and we're all concerned," he said. "Certainly small business feels it more than big business."
He said smaller stores have been hit with a double-whammy. On one hand, business is down because customers are leery. On the other, the government has made it harder for companies to get loans by increasing interest and assessments charged to banks, he said.
"With economic uncertainty such as we're currently experiencing, value becomes even more important to consumers," said Mark Stephens, president of Broyhill Furniture. "Therefore, it is more critical than ever that we offer consumers quality product at attractive prices," he said, citing Broyhill's Performance Leather and Essentials Bedrooms.
Jim Sherbert, CEO of RTA specialist Bush Inds., said that there never has quite been a recovery since the last recession and that there may not be a recovery for a while, especially given the ongoing inflationary pressures on commodity items.
"Consumers are spending money on base commodities," he said. "People are paying four bucks a gallon for gas, so it looks like economic growth, but it takes things that are discretionary and puts pressure on them."
He said Bush's growth will come from new product initiatives that reflect what's driving purchase decisions consumers today. He believes what the industry needs to be asking is "what does the consumer want for her home and how do we provide that so it's economically practical and meets her needs."
Richard Magnussen, CEO of case goods importer Magnussen Home, said he believes the economic uncertainty is creating difficulty for the industry.
"I think it's going to be very bumpy," he said. "Consumer confidence will be somewhat shaken and retail could be tough."
For that reason, he said that to be successful, companies will need to offer solutions, particularly in the area of supply chain management.
"Inventory and supply chain management is more important than ever," he said, noting that he believes Magnussen has programs in place to offer the amount of product retailers need in a timely manner.
"Offering quick ship when they need it is helping us," he said. "They (suppliers) need to be flexible and nimble. That is why we seem to be getting more business."
Senior Retail Editor Clint Engel, Senior Editor Gary Evans, Staff Writer Heath E. Combs and Associate Editor Thomas Russell contributed to this story.
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