Furniture Imports: Opportunity or Threat?

As imports of wood furniture continue to soar to unprecedented heights, the question for many U.S. furniture manufacturers is not, "Should we import?" but "How much?"

W.W. "Jerry" Epperson Jr., managing director of investment bankers Mann, Armistead & Epperson Ltd. of Richmond, VA, cited International Trade Administration figures indicating that imports of wood residential furniture last year represented 34 percent of what was sold in the United States. Eight years ago imports made up only 18 percent of U.S. wood home furniture sales, he said. (The trade figures Epperson cites are for finished goods and do not include wood components, upholstery and other non-wood furnishings. Those items are contained in the totals appearing in the charts on page 97.)

"We've been importing more and more," said John Ong, investment relations director for La-Z-Boy of Monroe, MI. La-Z-Boy, with 15 companies and $2.26 billion in sales last fiscal year, is one of the industry's leading players. "Almost all of our case goods companies are importing to one degree or another, and some are importing pretty heavily," said Ong. "We feel we need to do that to remain competitive."

Ong estimated that imports of wood components and finished products make up 20 percent of the case goods sold by La-Z-Boy companies. Imports account for a much smaller percentage of upholstered furniture sales. Overall, imports probably account for 8 to 9 percent of La-Z-Boy's total sales, Ong said. "We're blending our domestic product with import product to give consumers a real high value," he said.

Lane Looks Abroad

Furniture Brands, which counts Thomasville, Broyhill and Lane among its divisions, joins La-Z-Boy and LifeStyle Furnishings International Ltd. as the only U.S. home furniture companies with annual sales of better than $2 billion. Furniture Brands imports about $300 million each year, mostly of finished goods, said Lynn Chipperfield, the St. Louis-based company's senior vice president and chief administrative officer.

The percentage of sales of products sourced offshore is bound to increase following Lane's recent announcement that it will cease U.S. production of case goods in favor of purchasing products from lowercost sources in China, Indonesia, the Philippines and Thailand. Lane's case goods sales made up about 15 percent of Furniture Brands $2.1 billion sales last year.

Lane said it will close all three of its case goods plants, as well as its headquarters in Altavista, VA, by the end of the year. Marketing will be consolidated with Lane's upholstery division in Tupelo, MS.

"There's no question importing is an industry trend," said Chipperfield in characterizing the Lane announcement as "a rather dramatic wake-up call."

According to the company s press release, Lane has already been importing half of its wood products. The company said it will realize cost savings by closing the three underutilized plants.

Chipperfield said Thomasville and Broyhill are importing a portion of their product as well. He would not go so far as to predict a similar future for their operations, though.

"I don't think there's any question that the rest of the industry is going to have to stand up and take notice of the importance of imports and the values that can be offered to the retailers and consumers," Chipperfield added.

Will There Be A Future?

The U.S. industry is watching with much trepidation for its future. "A lot of people say there won't be one," said Epperson, a view he said he does not share. "Foreign manufacturers) would have to prove themselves throughout different types of distribution, which they're not doing yet."

Albert L. Prillaman, president and CEO of Stanley Furniture, Stanleytown, VA, also does not share the doomsday view. Prillaman, who is also the president of the American Furniture Manufacturers Assn., notes that some furniture industry observers predict that the market share of imports will rise from its present one-third to two-thirds. "If that's the case, it will displace a lot of American jobs and a lot of American factories." But, he pointed out, "In the early '80s, the Japanese were going to take over the automotive industry. It hasn't happened."

Epperson said he sees globalization as inevitable and not a bad thing. The furniture industry has always been highly competitive, he said, rewarding style, innovation, and brand names that indicate value. "We're now in a world economy and we have to compete." he said.

Furniture, Epperson said, is one of the last industries to go global, preceded by textiles, automotive, and electronics. "We can't sit around and say 'us versus them' and go out and buy a Japanese car or TV. We can't exactly get upset at American consumers for buying imported furniture. The idea is to give the American consumer the most value for the dollar. That's got to come from wherever it comes from."

The process, however, is confronting U.S. manufacturers with tough business decisions, said Andy Counts, vice president and secretary-treasurer of the AFMA. "A lot of them are finding there is a lot of value to be had by looking overseas," Counts said.

The AFMA, which supports open markets, including lobbying last year for Washington to normalize trade relations with China, will also continue to push for government legislation and regulations that will make it easier for its members to manufacture products in the United States, Counts said.

"I think it is something everybody is still wrestling with, where does it go from here?" said Prillaman. Stanley imports heavily carved, labor-intensive components like chair backs and some bunk beds so simple they could be procured from a variety of sources, he said. They add up to less than 5 percent of the company s total product.

China Zooms to Top

China has zoomed to the top of the U.S. furniture imports list, Epperson said, It is the source of more than one-fourth of foreign-made residential wood furniture entering the United States. With a shipment value of $1.65 billion of wood furniture coming into the United States last year, China is slightly ahead of Canada, which exported $1.37 billion here, Epperson said.

Other sources heavily responsible for the total $6.29 billion in wood furniture imports included Italy, Mexico, Indonesia, Malaysia and Thailand.

Canadian products have been sold in the United States for years, mostly by Canadian firms using their own brand names. Products from the Far East are usually sold to U.S. manufacturers for resale under the U.S. companys' brand names. Ong said, though, "At some point, it's just possible the Chinese may start selling furniture here (on their own)."

Prillaman said Stanley's experiments with importing from Thailand, Italy and the Philippines in the 1980s were not successful because of problems with quality and delivery. Because quality has gotten a lot better and the prices are attractive, the company is trying imports "very slowly and methodically" again, he said.

"One thing about wood, it is distinctive, It has character," Prillaman said. He said where the wood is harvested and processed, and how it is handled makes a big difference to quality. He noted that if a product is made in a subtropical climate with 30 percent moisture content and then shipped to Denver in the middle of winter, "It's going to explode on you."

Prillaman said he sees the furniture industry splitting into three major categories in the future. "Some people are just basically going to become trading companies and some are going to complement what they do well with what imports do well. A third segment is going to be primarily domestic manufacturers," he said.

Art Raymond principal of the consulting firm A.G. Raymond & Co. in Raleigh, NC, said, "I think everybody's leery about the quality of (imported) merchandise, the stability of their sources and the ability to flow merchandise without massive inventories."

Furniture Brands' Chipperfield said, "Any problems others are seeing in regard to the quality (of imported furniture) we have resolved."

Keeping Close Tabs

A quality-control company formed by two veterans of the U.S. furniture industry, Outlook International, contracts exclusively with Furniture Brands to look after its interests abroad, Chipperfield said. With five offices in the Far East, Outlook International helps Furniture Brands choose plants to partner with, runs testing labs for moisture content and other quality issues, and has representatives "who are on the factory floor all day every day."

"You absolutely have to have that presence," Chipperfield added. "You have to have those eyes and ears over there, or you're going to be very surprised when you open the box."

Retailers and consumers should not be able to tell any difference in Lane products now that they are all sourced overseas, Chipperfield said. Lane furniture will continue to occupy the "better and best" market niches. "We don't expect that there will be significant differences in the Lane product line. These are all products designed by Lane personnel and manufactured offshore" in plants that Furniture Brands does not own but "where we have significant oversight and where the products are being manufactured to our design and specification.

"Anybody can have product manufactured offshore," said Chipperfield, adding that one of the things that sets Furniture Brands' apart "is the recognizable brand names and assumption of quality and value.

"The way I tend to think of it is, the manufacturing of the product continued; now it is without reference to borders," Chipperfield said.

Far East imports are not limited to the ornate, heavily-carved kind of product they are often associated with, said Chipperfield. "There's no question that part of the attraction of imports is that these labor-intensive products -- intricate carving, intricate veneer work -- could be sourced offshore at a significantly greater value," he said. He added that Far East factories are capable of making practically any kind of wood furniture they choose.

Chinese Finishes Improving

Two years ago Chinese finishes were not very good, said Ong, then noted that that this is no longer true. "They've just been getting better and better," he said. "This is not low-end stuff."

Prillaman agrees with Ong that Chinese manufacturers have made great strides in their finishing departments. He further observed that Chinese manufacturers have good teachers in the international contingent of finishing materials and equipment suppliers who are doing their part to help grow China's furniture industry.

Delivery is one area where U.S.-made products maintain an edge, said Counts. "Our competitive advantage is turnaround," and with it a reduced cost of inventory for manufacturers and retailers, he said.

"The pipeline from China is very long," observed Raymond. "Some clients have indicated it takes a year to get a product off designers' drafting tables and to the retailer."

Chipperfield said Furniture Brands has found that it usually takes 12 to 15 weeks for the Far East furniture plants it works with to process and ship an order to the United States. There are exceptions, though. "You may find some products take upwards of six months," he said.

In comparison, Prillaman said turnaround time on orders is down to an average of 15 days or less at Stanley Furniture's new $17 million, CNC-equipped home office furniture plant. (See Wood & Wood

When U.S. companies use an overseas manufacturer, Raymond said, delivery time is usually longer because "you're dealing with independent factories on whose capacity you have no claim. You're one of several customers. That fact complicates the planning time you have to allow for in your forecast."

On restocking, he said, "If lead times from China are longer or less predictable, you must maintain higher inventories of imported goods to service your customers at the same level that you can from a U.S. plant."

Raymond said he knows of only a few U.S. manufacturers that have exclusive relationships with offshore factories, though he said that will change. "Such an arrangement will enable the U.S. company to control replenishment time," he said.

U.S. Plants Show Their Age

U.S. factories still have a window of opportunity to defend their turf by improving customer service, Raymond said. One of the two ways to do that -- automation -- is not an option for many U.S. furniture plants because of their old age, he said. The second option is to build new factories. "But to the best of my knowledge, nobody is breaking ground to build any new residential furniture factories in the U.S. and few companies are still investing major sums of capital in their existing plants."

"When you look at a factory that's in an old multi-story mill building," Raymond said, "it is just a matter of parking some old Chevys out front to think you are back in the early 1950s.

"There's plenty of technology out there. We just haven't been able to apply it all due to a shortage of investment capital," Raymond added. He noted that furniture prices have not kept up with increases in the consumer price index and that pricing pressures nave left companies' with little profit, further hampering manufacturing investments.

Government regulations also discourage the building of new plants and the renovation of old ones in the United States, Epperson said. "A lot of the manufacturers are trying to make old facilities adjust to the new regulations." At some point, he said, that becomes economically impossible. "You close it because you can't run it efficiently or competitively. That doesn't have anything to do with the Chinese or anything else."

Upgrading sales forecasting and the flow of products through a plant by improving manufacturing information systems is "the quickest and cheapest step you can take to improve customer service," Raymond said.

Some U.S. companies have been doing just that, he said improving "their master scheduling, inventory management and shop floor control. The end result has been significant improvement in their ability to ship to customers quickly."

Companies that have not upgraded equipment, information systems and training are "really behind the eight-ball," Prillaman said. "If the only thing they're competing on is price, they've got a problem."

Some market niches are less vulnerable to import competition than others. For example, Epperson said there is little labor involved in RTA furniture, so there is little advantage in sourcing it abroad. The cost of freight plus marketing costs to attract U.S. customers may make manufacturers feel other lower-priced RTA furniture goods are not worth the expense, he said.

Collections with a lot of SKUs or a high degree of custom work are also less vulnerable, Epperson said. Most Chinese plants, for example, are set up for long-production runs and cannot easily accommodate "doing a little bit of a lot of different things," Epperson said. "They aim at the broad middle."

Upholstery Less Affected

Though there are a lot of cut-and-sew operations overseas and plenty of upholstery kits being shipped to the United States for attachment to frames, there has been far less finished upholstered furniture coming in than case goods, Ong said. "Upholstered products are very lightweight and bulky. You're basically filling up containers with air" he said.

"The ability of U.S. plants to deliver upholstery rapidly has drastically improved," said Raymond. U.S. manufacturers of upholstered furniture have created a particular advantage by supplying on a build-to-order basis, he said. Such a strategy enables more customization of styling and fabric choice. Raymond said. He said a retailer trying to fill an individual custom order is more likely to send the business to Hickory than Beijing.

Until great improvements are made in logistics, most upholstery customers wanting a wide range of choice will prefer to work with a plant in the United States than purchase from an off-shore source, Raymonds added.

Turning Back the Tide

Import sources may shift, observers said, as foreign economies mature. "Growth five years from now may peak in China," said Epperson, "Already, China's 30 cents an hour wage exceeds Vietnam's 10 cents an hour, he said. He cautioned, however, that it is a mistake to assume that China is totally driven by a profit motive. It's still a Communist country, he said. "Some furniture plants are in business to create employment and to get U.S. dollars to spend."

Ong said it is possible that if the "heavily carved look suddenly becomes passe," the growth rate of furniture imports will abate. Ong said a weakened U.S. dollar could also benefit domestic furniture manufacturers. But barring such major occurrences, Ong said, "From where we are now, the momentum is going to continue to some degree, less produced here and more overseas."

Epperson noted that the dollar is as strong today as it has been in the last 30 years and that this strength is an often overlooked factor favoring imports. "Canada doesn't have cheaper labor or raw materials than we do, nor any freight advantage. Why are their products growing so fast? (Because) our dollar can buy more of their products," he said. For Canadian furniture manufacturers that export furniture to the United States, "It's like getting a free price increase every year without doing anything."

Growth avenues remain for U.S. firms to compete for, Epperson insisted. "(Foreign furniture makers) have a lot of opportunities open to them, but so do we." Epperson said there are some 600 major U.S. manufacturers and a dozen major brand names "everything from upholstery to wood, the least expensive to the most expensive. Each of them has a different opportunity open to it," he said. Companies with strong brand names like Ethan Allen, La-Z-Boy and Thomasville, he pointed out, have marketing advantages over domestic and foreign producers of lesser reknown.

Prillaman said, "You've got to figure out what you do well, and what they (foreign companies) do well, and mix the two. There's no silver bullet here."

"I think ultimately we've got to get rid of all the old plants," Raymond said, adding, "The cost of bringing some of those plants into the 21st century is prohibitive."

Raymond said the U.S. furniture industry can use "some brave people willing to look at new ways to achieve profitable furniture manufacturing." He said he is concerned that too few senior furniture executives are seriously thinking along these lines. "It's easier to get on an airplane and go to China," he said.

Manufacturers can learn something about focus niches and specialization by studying business models used successfully by other industries, Raymond said.

Manufacturers of kitchen cabinets rarely build their own doors, he said. They reap the cost benefits of outsourcing doors and specializing on product design, delivery and marketing. Cabinetmakers, he said, "are able to deliver a particular customer's kitchen within two weeks of the order, They can have kitchens manufactured, one right after another down an assembly line, put on a trailer, without ever having to enter a warehouse."

The furniture industry, by contrast, too often tries to do everything under one roof "going from a stack of lumber to a finished product," Raymond said. Still Raymond added there will always be room for well-equipped, well-managed furniture companies in the United States -- "if they get their business models straightened out."

Tale of the Tape
Leading U.S. Furniture Importers
(millions of dollars)
                2000   1998   1996   1994  1992  1990
Canada          2,557  1,785  1,160  754   412   359
China           2,522  1,193   666   427   180   100
Italy           1,194   791    609   502   368   448
Mexico           645    529    367   227   185   174
Indonesia        564    368    255   210   107    70
Malaysia         539    424    407   319   105    40
Taiwan           468    474    487   644   703   644
Thailand         297    187    162   176   130    86
Philippines      269    192    131   122   101   130
Denmark          145    123    103   121   107   136
United Kingdom   122    109     80    67    53    58
Brazil           121     64     61    56    34    28
France           103     61     39    34    30    34
Total U.S. Furniture Imports vs. Exports
          2000   1998   1996   1994   1992   1990
Imports  10,370  6,870  4,969  4,050  2,884  2,854
Exports   1,352  1,165  1,005  1,007   923    598
Major U.S. Furniture Import Categories
                 2000   1998   1996   1994   1992   1990
Bedroom          1,687   946    640    487    331    313
Upholstered      1,346   839    610    473    368    390
Chairs            998    772    661    611    408    364
Kitchen           181    135    123    95     55     55
Office            715    507    295    230    123    141
Furniture Parts   636    365    262    192    150    143
Cabinets          486    329    227    132    74     78
Chair parts       124    93     72     48     40     36
Other            4,197  2,884  2,079  1,782  1,335  1,334
China's Share of U.S. Furniture Import Market
                 2000 $  Share
Bedroom           434    25.7%
Upholstered       156    11.6%
Chairs            230    23.0%
Kitchen            29    16.0%
Office             87    12.2%
Furniture Parts   102    16.0%
Cabinets           13     2.7%
Chair Parts        40    32.3%
Other            1,431   34.1%
Source: U.S. Department of Commerce International Trade Administration

Ethan Allen Teams Up with Markor to Sell in China

Greg Landgraf

Ethan Allen Interiors Inc. of Danbury, CT, has joined with Markor Furniture International Ltd. of Urumqi, China, to develop a chain of retail stores in China. The companies plan to open the first store in the summer of 2002. The stores will market both Ethan Allen's and Markor's "retail programs, according to an Ethan Allen press release dated May 29, 2001.

A spokesperson for Ethan Allen declined to comment further on the agreement.

In an interview with the Wall Street Transcript dated April 9, 2001, Ethan Allen chairman, president and CEO M. Farooq Kathwari identified the increasingly global nature of sourcing as one of Ethan Allen's most significant challenges. "For us to continue to open stores in Europe or China or other places woud require more manufacturing in those parts of the world," he said. Markor is among China's largest furniture manufacturers. It has been in operation since 1993 and produces pine dining room, bedroom and occasional furniture for the domestic market and export. Markor has three factories and a company headquarters in China, and a service facility in San Diego, CA. The company participates in the High Point International Furniture Market twice annually.

According to Markor's Web site, www.markorfurniture.com, the company carefully controls moisture content, performs quality inspections at every stage of production and conducts random product tests. Markor says that product shipping takes eight to 10 days.

Ethan Allen is North America's fifth-largest residential furniture maker with annual sales of more than $850 million. The company sells its product through more than 300 Ethan Allen stores, more than 20 of which are located overseas.

West Meets East: LifeStyle Furnishings Readies Sale of Universal to Chinese Firm

LifeStyle Furnishings International Ltd. of High Point, NC, has reached an agreement to sell its Universal Furniture division to Lacquer Craft of Canton, China. Lacquer Craft Manufacturing Co. Ltd. is a leading Asian manufacturer of case goods, dining room and occasional furniture, with operations in Dong Guan City, Canton, China.

LifeStyle Furnishings rang up sales of $2.1 billion in 1990. Universal, along with Henredon, Lexington and Drexel Heritage, is one of LifeStyle's "full-line" furniture divisions. Universal's furniture factories are located in the Far East.

In the press release announcing the proposed transaction, Alan Cole, president and CEO of LFI, said, "The dramatic changes, both current and anticipated, in the furnishings industry require new business models in order to compete successfully. The combination of Lacquer Craft's manufacturing capability and Universal's sales, marketing and distribution prowess, create a powerful force that will be highly competitive and appropriately responsive to dynamic change within our industry."

Harvey Dondero, who will continue as Universal's president, said, "Container direct shipments to customers will be a major focused strategy of the new Universal/Lacquercraft combined company.

Dondero added, "We firmly believe the Asian manufacturing, principally in China, driven by strong U.S. marketing and sales, is the future for the commercial U.S. case goods and occasional furniture businesses. While substantial change is often difficult, it is an essential ingredient pursuant to establishing the basis for a vibrant future for Universal."

The sale of Universal to Lacquer Craft is expected to be closed by July 31. Terms were not disclosed.

Quality Finishing For Less Leads Furniture Importer to China

Joseph Maffia

In April, 40 new pieces were added to the existing 400-piece collection by Patricia Hart McMillan, which was launched at last October's market in High Point, NC. On the recommendation of Eddie Garcia, CEO of Garcia Imports in Hayward CA, McMillan's line of hand-painted wood furniture is made entirely in China.

McMillan's collection Sun Country Style, which includes occasional furniture, accessories and lighting, is the first licensed group of Garcia Imports. The accessories are produced in Thailand, while the non-wood furniture is made in the Philippines. The entire collection is made in Asia.

Garcia said he immediately saw two reasons to take the collection to China. "They are very talented painters and finishers," Garcia said, "It was a combination of that talent and the pricing situation. They are much lower than anywhere else in the world."

What Garcia and McMillan found was that the lower price did not mean a lower quality product. "I could not have been happier with the finishing," McMillan said. "The colors are subtle and beautifully applied."

All of the wooden furniture is made at Asian Dynasty in Zhongshan, a small town located in the province of Guangdong. Garcia Imports has done business with Asian Dynasty for the past 15 years.

McMillan was also impressed with their attention to the smallest details, including the finish on areas that are not normally seen, such the backside of a head board. "Not only is the front side of the head-board beautifully crafted," McMillan said, "but the back is beautifully finished as well, It is very smooth to the touch."

McMillan is very happy with the work that has been done, and hopes that the relationship will continue. "Working with the Chinese has been a very pleasant experience for me," she said.

Garcia was pleased with both the finished product and consumer reaction. "We are delighted with this collection, and enthusiasm is high for the market," he said. "Customers really appreciate the amount of detail and workmanship that goes into these pieces. They appreciate the price as well."

While McMillan's line is made in China, it is not marketed or sold there. "These models are made for the Western way of life," Garcia said. According to Garcia, a majority of the wood used in the collection is a local Chinese cedar.

McMillan, former concept director of the Franklin Mint's Creative. Home division and former decorating and remodeling editor of New York City-based magazines, is the co-author of Sun Country Style, and it's sequel, Sun Country, Elegant. The books report on American's contemporary decorating trends for country homes. She is also the co-author of Home Decorating for Dummies. All three books have been co-authored with her daughter, Kay McMillan.