Embattled RTA industry: turns to imports, new designs.

Like their counterparts in traditional wooden residential furniture, North America's top ready-to-assemble furniture companies enter 2006 wrestling with how to compete against imports. Their answer seems to be, not only if you can't beat 'em, join 'em, but also go one better in new product development and speed of delivery.

Once thought to be well protected against low-cost goods from Asia because of the RTA furniture industry's reliance on high technology instead of labor, all four of the biggest North American-based RTA companies--Sauder, Ameriwood division of Dorel, O'Sullivan and Bush--have felt the pinch of competition.

Glass and metal furniture from Asia have become a factor in the primary RTA categories of home office and home entertainment. In addition, imported solid wood and wood-veneered products are being sold at prices that are highly competitive with RTA's traditional laminated-particleboard construction.

"The market has changed dramatically in the last 24 months," said Greg Carlson, president and CEO of Dorel's Ameriwood Industries.

RTA is probably less exclusively a particleboard and laminates category than it was four to five years ago, said Kevin Sauder, president and CEO of the RTA industry's sales leader, Sauder Woodworking. "But all markets change. We've adapted."

Tough Times

In 2005, Ameriwood closed one of its four RTA furniture plants, citing overcapacity. O'Sullivan Industries is reorganizing after declaring Chapter 11 bankruptcy in October. Bush Industries is now a private company, after reorganizing under Chapter 11 in 2004.

Sauder Woodworking, meanwhile, has managed to keep its sales steady, at about $550 million in 2005. The company's annual revenues climb to approximately $750 million when the sales of Progressive, a sister case goods company, and contract/church furniture manufacturer Sauder Manufacturing, are taken into account.

"We have held our sales levels near their peak levels as our competition has seen their sales level drop," Sauder said. "I think we have the broadest base of distribution." Although some of Sauder's customers, like Montgomery Ward, have closed and others, including Sears and Kohl's, exited RTA for a time, the company has been able to gain business from Wal-Mart and other retailers. "We have been able to shift our distribution to those that are still growing," Sauder said. He added that Sears is beginning to get back into RTA sales and Kohl's is experimenting with sales of RTA furniture on its Web site.

Both Sauder and Carlson said part of their companies' strategies is to take advantage of global sourcing. Spokespersons for Bush and O'Sullivan could not be reached for comment, but in its strategic turn-around plan adopted after new management came aboard in 2004, O'Sullivan emphasized global sourcing, new product development and focusing on specific market segments. Bush also is expanding its product and market range, including the introduction of fully assembled furniture and sewing as a source of laminated components for store fixture, closet, cabinet and other manufacturers.

Two years ago, Sauder Woodworking bought Studio RTA, primarily an importer of metal and glass RTA furniture. "That became part of our portfolio," Sauder said. "We've been working with them and sister company Progressive, a wood case goods company, to get a better supply for wood and imported RTA furniture.

"We think there's a market for all types of products," Sauder added. "Our basic business on laminated RTA furniture (produced in Archbold, OH) has remained very strong."

Consumers Want Choices

White low prices account for part of imports' popularity, Carlson said the desire for wood, wood veneer and other alternative materials is also a matter of consumer preference. Retailers such as Pottery Barn and Ikea have exposed consumers to new offerings of RTA products, and by doing so have expanded the RTA market, he said.

In the past year, Carlson said Ameriwood has accelerated the development of new domestically produced "hybrid" products and sourced finished goods. Hybrids combine laminates with metal, glass, MDF, wood and wood veneers; much of the products come from Asia.

Historically, Ameriwood's prime market has been through mass merchants, including Wal-Mart, Kmart and other major retailers. Carlson said the company will continue to develop products for them. "By applying exceptional design and functionality, we're expanding from traditional opening-price-point products to higher-end goods sold through a broadened sates base," he said.

In its efforts to branch out to new customers, Carlson said Ameriwood has co-developed new products with electronics companies like Belkin, Samsung and Akai sold through electronics superstores. He noted that the new Altra brand workstations have built-in Belkin USB devices. Launched in October at Office Depot, the workstations incorporate both imported and domestic components and materials and are made in North America to sell at value-added prices. As an example, the Aviator and Empire workstations retail for $209.99 and $259.99, respectively.

Carlson said the workstations' success convinces him that "retailers can offer these well-designed, high-quality, domestically produced value-added products and successfully meet consumer desires."

Success with Store Brands

Sauder has moved heavily into the manufacture of OEM products for some of its customers, including some Home Trends products for Wal-Mart, the Furio brand for Target and all of the Christopher Lowell-licensed RTA furniture for Office Depot.

"A lot of our efforts have been product development, efforts that have been specific to these retailers," Sauder said. "It helps give them the differentiation they're looking for."

In the last year and a half, the Christopher Lowell product line has grown to the point that it takes up most of the RTA floor space at Office Depot, Sauder said. The products are Laminate, but not at promotional prices. "They're better goods: $399 desks and $599 armoires," Sauder said.

When it comes to competing with imported wood and wood-veneered furniture selling at laminate prices, Sauder said, "There's a tradeoff between shipment time, turnaround time and some of the products' features. You can perhaps get the laminate products delivered in three days, and the risk is low because it's from a great domestic supplier."

Shipments from China take six to eight weeks, Sauder said, and there are bigger risks involved. "You have to compare the actual product ... I think laminate still offers a good value there," Sauder said, citing the success of the Christopher Lowell line. "We really have shown that with great styling and excellent logistics and a good brand push, the product can continue to sell very well."

At Ameriwood, Carlson said, "I think there's going to be ongoing opportunity for a balance of both domestically produced and offshore products. Global competition challenges all of us to continue to develop well-designed products with great value to meet consumers' needs and expectations."