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Furniture fighters.


Nick Hill walks as fast as he talks. He charges through his cavernous Kern-Hill Furniture Co-op at 843 Main Street, shouting to employees and dropping high-decibel schmooze into the earnest deliberations of his salesmen and a few scattered customers.

Finally, in a second-floor room, he stops and points. His finger stabs the air above a large white armchair with brass accents. "Go on; try it," he rasps.

Without waiting for his invitation to be accepted Hill bends over and pushes several times on the fabric which covers the arm of the chair. A smacking noise stutters in time with the punches. It's the sound of the fabric flopping against the wooden frame.

"Hear that?" roars Hill. "Now you know what I mean. That's an American chair and it's lousy quality."

For Nick Hill, The King of the Three-Room Group for 40 years, words alone cannot explain why 90 per cent of the furniture he sells is Canadian. He's not saying all American product is bad, simply that in the market he serves -- low to mid-range -- the home-made solution is the best.

Unfortunately for many Canadian furniture manufacturers, too few retailers think that way. Instead, they are content to buy ever-increasing quantities of stock from south of the border. Last year, for the first time, Canada imported more U.S. furniture than it sent south. American manufacturers boosted their exports to Canada by 20 per cent to $470 million, while Canada's exports to the U.S. dipped to $427 million, a three per cent decline. This is the third consecutive year Canada has suffered the imbalance; it used to be in our favor.

The Canadian industry blames the Free Trade Agreement for the reversal. The FTA dropped the protective tariff rate on U.S.-made furniture and markets for Canadian-made felt the blow.

Prior to January 1, 1989, the Canadian industry was in a relatively cozy position, with a 15 per cent border tax on incoming U.S. furniture. But once the tariff came off, competition hardened from the deep southern U.S.A., where the majority of American furniture is made. Cheaper furniture has flooded in to Canada.

Joe Malko, president of Furniture West, a Canadian industry association which represents 200 manufacturers and raw material suppliers in western Canada, acknowledges the tough times. "I'd be a liar if I said the FTA has been easy," he says. "It's been a long rough road."

One Winnipeg-based furniture maker that not only survived the winds of change but has thrived is Palliser Furniture, a 48-year-old company with 1,800 employees. But dealing with the upheaval was difficult, says president Art DeFehr.

"Following the introduction of the Free Trade Agreement, it was a very difficult time in Canada," he says. "It forced us to move into the U.S. more."

And move Palliser did. Just last year the company bought a huge plant in North Carolina, whose furniture industry supplies the large sunbelt market.

DeFehr says his firm's move was necessary because furniture is "freight-sensitive." Chairs, tables, sofas and beds are bulky but not particularly heavy. As a result these items cost a bundle to ship out of the factory, and those high transportation costs meant it was impossible to feed the demand from Palliser's existing plants in Winnipeg, Calgary and North Dakota.

The FTA also forced Palliser to realize that being a big fish in the small market of Western Canada was no longer good business. It had to start swimming in a continent-sized sea.

Says DeFehr, "Ten years ago we were a western Canada supplier, but Western Canada is not a reference point anymore; the reference point is offshore."

Few companies are large enough to be an all-purpose furniture supplier to almost 300 million people. Targeting that market means coming up with a more specialized product line.

DeFehr decided to follow that strategy.

"The biggest challenge was to pick a few areas to do well in," he says. Palliser's Calgary plant now produces a line of leather recliners. Stylistically, the firm makes "contemporary" furniture rather than "traditional" and today uses only oak wood frames instead of the three varieties of wood it once used. The drive to be leaner and more focused has paid off for Palliser which last year reported gross sales of $165 million. DeFehr observes modestyly, "...We do a number of things reasonably well."

In the Inkster Industrial Park in north Winnipeg is another firm that does reasonably well. Accro Furniture Industries has been in business since 1946 and its key to success has been following the population bulge. Its first product, just after the Second World War, was kitchen dinette sets. School and library furniture followed, then fast-food-restaurant chairs and tables, university, office, and now long-term health-care furniture. "We've literally followed the baby boom," says President Terry Clark.

Since the imposition of the FTA, following the furniture crowd has become a crowded affair for Accro. Not only are there many more American manufacturers competing for the same market, but, Clark adds, "...not all the problems are due to tariff elimination." In the free trade talks in the mid-'80s, all the "projected sector damage" was based on a 75-cent dollar. The high Canadian currency means it has been much easier than expected for U.S. furniture companies to pluck Canadian markets.

"We're now sharing our market with the Americans on a daily basis," adds Clark.

Another problem for the industry overall is its declining market share. Consumers are not spending the same percentage of their disposable income on furnishings as they did two decades ago.

"There are a lot of distractions for the consumer," says Clark. Furniture retailers now compete head-to-head for dollars with retailers of cars, travel, leisure products, kitchen renovations and stereo equipment. "It's a tough sell," says Clark. "We're not glitzy. What we make is not a product for one-upmanship, or a status symbol like a car or a tan... We've lost ground."

There is yet another threat on the horizon for the industry. No one is prepared to predict what long-term effects the possible North American Free Trade pact involving Mexico will have on Canada, but the consensus is that the impact can only be negative. One of the largest components of per-unit cost in any item of furniture is labor, and Mexico has low manpower costs.

While talks about the deal continue, the reaction of the American furniture makers is providing a source of ironic and bitter humor for the Canadian industry. When the Canada/U.S. FTA was being negotiated, the U.S. manufacturers insisted upon an immediate elimination of all tariffs. The Canadian industry was pushing for a gradual phasing out of the border tax over 10 years. They compromised at five years. Now, half a decade later, the Americans, faced with Mexican competition, are arguing loudly for a 25-five year period during which duties will slowly be removed.

Joe Malko says Furniture West is trying to smooth the way for manufacturers. It recently negotiated a bulk transportation deal with Clarke Railfast to ship more than 13.6 million kilograms of raw materials from central Canada to Western Canada. And, in cooperation with the National Research Council, the industry has initiated a five-year plan to bring the entire western Canadian industry up to global standards. Now in its second year, the plan provides factory assessments by Malko and three engineers who recommend ways to improve productivity. New ways to market and package furniture are being studied and worker education is being pumped up.

"Traditionally the industry has been based on the easy way out," says Malko. "Western Canada is fairly isolated, a regional market that was ignored. So it was easier to copy designs and lower prices; that's truly been the basis of the industry, but it's got to stop." Despite the gloom he is optimistic. "We have demonstrated that our guys will survive, but it's up to them."

Another voice of optimism comes from Fred Brick of Brick's Fine Furniture. His store in the warehouse district sells high-end furniture and is the only local outlet for Thomasville, an exclusive American line. The recession and a nasty and lengthy court battle with the large furniture dealer The Brick Warehouse over trade names in the Winnipeg market, has toughened Fred. (He claims the fight for his name hasn't been cheap. The $175,000 spent to date is to ensure the company name stands alone.)

Brick sees the days ahead in a positive light and has his own philosophy about the market. "A lot more people are spending time at home," he says. "Some say it's the recession. I think it's what is happening in Canada and the world. Everything is breaking up and scattering and people want the solid relationships they can find at home." No doubt with their favorite couches and blankets.

The buzzword for this is 'cocooning' and Brick is poised to capitalize on the residential butterflies.

Nick Hill says his end of the furniture business doesn't really suffer from another made-in-the-U.S.A. threat -- cross border shopping. After all, few people are prepared to haul a dining-room table across the 49th parallel.

As a summary, Hill, whose commercials haunts late-night television and are a permanent commercial fixture on radio station CJOB, offers his secret to success.

"Make sure you have the product, good service and the price," he says. "And don't screw the public."

Nick Hill also avoids bank debt. He says he learned this lesson in 1963 when he attempted to expand in a down cycle and the banks almost closed up the shop. He hurls another maxim in his husky voice as this reporter leaves the store.

"If you understand the rules and the way it's played, it's easy... Before elections, business is good. Afterwards it tightens up."

It's enough to make the furniture manufacturers wish for an election every year.



Most Canadian office furniture manufacturers -- 93 per cent -- are in Ontario and Quebec. One of the handful of local firms is Westnofa, a division of North American Caseline. It's been in business since 1957 and employs 40 people making wooden desks, bookshelves, armchairs, swivel tilters and a huge array of boardroom tables.

David Spearman, Westnofa's vice-president of sales and marketing, says business has been thin.

"The market is as slow as it can get, but I don't think it can get any worse," he says. According to Westnofa and other office furniture makers, the factors that have put the brakes on business throughout Canada are the Free Trade Agreement and the high Canadian dollar.

The latest report on the office furniture industry, issued by the federal Department of Industry, Science and Technology, provides a glimpse of what Canadian manufacturers are facing as the tariff barriers at the 49th parallel continue to fall.

Of the 194 firms in Canada, over half employed fewer than 20 people. Total employment was 12,500. In 1989, the industry shipped $1.2 billion worth of products, 27 per cent of which was sent south of the border.

By comparison, there are more than 500 factories making metal and wood office furniture in the U.S. Together they have annual sales of almost $8 billion.

In Canada the average annual shipment per employee in 1987 was worth $53,000; it was 30 per cent higher in the U.S. In addition, the industry is noted for the high material and labor costs which amounted, on average, to 71 per cent of the value of shipments in Canada and 61 per cent in the U.S. The report concludes, "Canada's office furniture industry continues to be less cost-competitive than the U.S. industry in terms of costs of production and residual value-added per dollar of shipments."

Our currency, which was below 75 cents U.S. during the middle years of the last decade, is now soaring around the 84-cent mark. For Spearman, that figure is the key indicator.

"The only thing that can help |the industry~ is if the Canadian dollar goes down," he says. "It's artificially too high." If the C-buck does drop in value, Westnofa expects sales to increase. "We sell based on quality," says Spearman, who notes that few Canadian firms can compete with the lower wages and longer production runs of the Americans. "We're not after the low end."
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Title Annotation:includes related article on overview of industry; competition posed by US to Canada's furniture industry
Author:Ryan, Bramwell
Publication:Manitoba Business
Article Type:Cover Story
Date:Jun 1, 1992
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