Confidence soars in 10th annual survey.

10th ANNUAL

W&WP conducts its loth Annual Survey of the Residential Furniture Industry. This year's survey notes a profitable 1997 and high hopes for 1998.

As sales of residential furniture hit unprecedented highs in 1997, industry confidence for the future also went soaring, according to Wood & Wood Products' 10th Annual Survey of the Residential Furniture Industry.

Nearly 30 percent of the companies who responded to the survey said that 1998 would be their best year's ever, while another 57 percent said 1998 would be a very good year. Fourteen percent of those surveyed predict that 1998 would just be an "OK" year; none said that 1998 would be a poor year.

The confidence of surveyed executives is bolstered by projections from the American Furniture Manufacturers Assn. The industry association's econometric models forecast shipments to increase by 6.6 percent in dollar value in 1998. Real growth for 1998 furniture shipments, after inflation, is expected to be 4.3 percent, according to the AFMA.

Overall, 1998 U.S. furniture shipments are projected to hit $22.621 billion, a $1.4 billion increase from 1997. If the prognostication holds true, 1998 would be the first year in history that shipments topped the $22 billion mark. Wood furniture shipments are projected to increase 5.7 percent in 1998 and reach $10.824 billion and topping the $11 billion mark next year.

A Look Back at 1997

The 25 companies with the highest sales, as identified by W&WP, combined to ship an estimated $12.4 billion in 1997. The top 10 companies shipped more than $7.3 billion - nearly 60 percent - of that figure. Overall, more than $21 billion in residential furniture [TABULAR DATA OMITTED] was shipped, according to the AFMA, making 1997 the first year the industry has topped the $20 billion mark.

Approximately one-third of those surveyed said that 1997 was their best year ever. Another 33 percent said 1997 was a very good year, and the remaining third said 1997 was just an OK year, according to the survey.

The survey respondents had a better year in 1997 than was predicted in last year's survey. In last year's poll, the results of which were published in the February 1997 issue of W&WP, only 11 percent of the companies surveyed felt that 1997 would be its best year ever. Another 39 percent had predicted that 1997 would be a very good year; while fully half of those surveyed said that 1997 would be an OK year.

Issues of Concern

For the fifth year in a row, the onus of government regulations that are placed on business were identified as the biggest concern of the residential furniture industry. Twenty percent of those surveyed said they were extremely concerned about government regulations and another 50 percent said they were very concerned. (See chart page 57.)

When asked to compare their level of concern against how they felt a year ago, 20 percent of those interviewed said they were more concerned about government regulations. Not one company spokesman said he was less concerned about this issue.

[TABULAR DATA OMITTED]

Wood supply - quantity, quality and price - was the second biggest concern identified in the survey. The issue jumped from the sixth biggest concern identified last year to number two this year. As compared to a year ago, the majority of respondents were more concerned about this issue than any other.

Foreign competition and competitor price cutting were less of a concern this year than last, according to the survey. Last year, residential furniture makers cited these two issues as their second and third biggest concerns, respectively.

Sam Gazdziak and Barrett Kilmer contributed to this report.

For additional coverage of the residential furniture industry, please visit our website at www.is-wonline.com.

RELATED ARTICLE: News at the Top

1997 was a year of change for the Top 25 companies in the residential furniture industry. Here are some highlights:

LifeStyle Furnishings International of High Point, NC, (No. 1) netted $1.959 billion in sales for the year and a gross profit of $491.5 million. Excluding non-recurring restructuring costs, gross profit increased $9.5 million or 1.9 percent.

Furniture Brands International of St. Louis (No. 2) reduced its order backlog due to strong shipping activity and reported record sales per common share in all four quarters.

Monroe, MI-based La-Z-Boy announced plans to close its three contract plants in Grand Rapids, MI, (No. 3) and to begin producing these products at an existing plant in Lincolnton, NC. The company also named Gerald Kiser president, chief operating officer and member of the board, to replace the late Charles Knabusch.

Ethan Allen Interiors, based in Danbury, CT, (No. 4) introduced a new Home and Garden line and opened new stores to bring its total in North America to 299.

LADD Furniture Inc. of High Point, NC, (No. 5) reported $525.5 million in sales for 1997 - a 6 percent increase over the previous year. Gains were due in part to an almost 50 percent sales increase by the company's contract furniture business. Ladd also announced a licensing agreement with Dennis Connor, one of the premier sailors in the world, to launch a collection of boy's and girl's bedroom furniture under the name "Stars and Stripes."

Bassett Furniture, the Bassett, VA-based manufacturer (No. 7), restructured and will be focusing efforts on its core business - wood and upholstered furniture.

Dorel Industries Inc. of St. Leonard, Quebec, (No. 8) figures to move up in next year's poll after purchasing Ameriwood Furniture of Grand Rapids, MI. The two companies had combined sales of approximately $484 million in 1997.

Bush Industries Inc. of Jamestown, NY, (No. 9) acquired Fournier Furniture for $7 million in April. It was also awarded the president's "E" Award for Excellence in Exporting in recognition of its contributions to the U.S. export trade.

O'Sullivan Industries Holdings of Lamar, MO. (No. 10) saw an increase in net sales of 10.2 percent to $321.5 million with the average selling price per unit remaining relatively unchanged.

Palliser Furniture Ltd., based in Winnipeg, Manitoba, (No. 11) plans the development of a manufacturing facility in Mexico for leather upholstery and metal components in 1998 following the rapid growth of the company's leather upholstery category.

Carthage, MO-based Leggett & Platt (No. 12) acquired seven companies Feb. 5, including three fixture and display companies, for an undisclosed price. The three companies have combined sales of approximately $175 million.

Flexsteel Industries Inc., based in Dubuque, IA, (No. 13) acquired Dygert Seating Inc. and its related production facilities in Elkhart, IN, and sold its manufacturing facility in Sweetwater, TN.

Stanleytown, Va-based Stanley Furniture (No. 14) saw its net sales increase to $211.9 million in 1997 - a gain of 5%. It also repurchased 1.3 million shares of common stock from the M.L. Lee Acquisition Fund, formerly a major stockholder in the company.

Pulaski Furniture of Pulaski, VA, (No. 16) announced a $0.17 per common share dividend. Additionally, it eliminated the domestic seating line and sold the Craftique division.

Rowe Furniture, located in McLean, VA, (No. 17) acquired the assets of J & M Designs, the Wexford Collection, of Carson, CA. Mary Beck, who Rowe officials credit with her company's growth, will remain as president of the new Wexford Collection subsidiary.

Vaughan Furniture of Galax, VA, (No. 18) celebrated the first year of operation of its T. George Vaughan bedroom furniture plant in 1997. (See page 41.)

Krause's Furniture Inc. of Brea, CA, (No. 19) saw an infusion of capital totaling $15.7 million from an investment group spearheaded by G.E. Capital. Renovation of 54 stores by Jan. 31, 2000, and the addition of 36 new stores are planned.

Ameriwood Furniture, the Grand Rapids, MI-based manufacturer (No. 20), was purchased by Dorel Industries for an estimated $41.1 million. In fiscal 1997, Ameriwood had $94.6 million in sales.

Standard Furniture Manufacturing Co., based in South Bay Minette, AL, (No. 21) added 200,000 square feet of warehouse space and plans expansion into foreign markets for both importing and exporting in 1998.

Winston Furniture Co., a division of Pelham, AL-based WinsLoew Furniture (No. 22), was named Vendor of the Year by Georgia Backyard, a leading retailer of casual furniture.

DMI Furniture Inc., of Louisville, KY, (No. 23) announced three new divisions last year: The Wynwood Furniture division, offering higher-end wood furniture; the the DMI Desk Co. division and most recently the Home Styles division, featuring casual home furnishings.

Bestar Inc. of Lachine, Quebec (No. 25), announced a 3-year, $10 million capital investment in plant and equipment, with hopes of adding 50% capacity to the plant.

Barrett Kilmer

RELATED ARTICLE: The Rich Get Richer

In the 10 years since our first survey, the residential furniture industry has undergone considerable change - and not just in design and manufacturing. Mergers and acquisitions have left many old names off this year's list, added some new ones and helped others move up in the rankings. Interco Inc., W&WP's first list-topper, many many changes including selling Ethan Allen, buying Thomasville and changing its name to Furniture Brands International. This year they are ranked number two.

Ten years ago, Masco and Universal were numbers two and three before Masco bought Universal in 1989 and began to develop its high-profile home furnishings group. In 1996, Masco Corp. sold the Group for $1.1 billion to Furnishings International. A year later, the top-ranked company changed its name to Life Style Furnishings Int'l.

In fact, only seven of the original top 25 still use the same names as they did 10 years ago: Bassett, LADD, La-Z-Boy Inc., Sauder Woodworking, Stanley, Bush Industries and Rowe.

While the names may change, one thing remains constant - dominance by the largest makers. The industry has long been one with two or three leaders followed by the rest of the pack, but that gap has widened since our first survey. In 1988, two manufacturers had combined sales of more than $1 billion. This year La-Z-Boy joined that group. These three companies totalled sales of $4.767 billion. It took ten companies to reach that total on our first survey.

Another big difference between this year's survey and the one taken 10 years ago is the optimism the industry currently feels. In the first survey, manufacturers were uneasy about the economy their uneasiness proved correct. Jim Kirby, then senior vice president for Bush Ind., was "concerned about the health of the economy. We can't be any healthier than our retail customers are." This year's survey shows an industry still concerned about the economy, but given its strength, the level of anxiety is considerably lower. In fact, over half predicted 1998 would be their "best year ever" and none predicted anything below. "OK".

Barrett Kilmer