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MATERIAL PRICES HIT HOME.

Byline: HFN Staff Report

NEW YORK-The sky-high cost of raw materials is making life extremely difficult for many home manufacturers.

As the price of petrochemicals and metals continues to rise, manufacturers are choosing alternative materials. Some have even taken the drastic measures of passing along costs to retailers.

How high can the prices go? And how will consumers react to higher tickets? Stay tuned.

Petrochemical Prices Worst Ever

Price increases are "the most extreme I've seen," said Les Mandelbaum, co-founder and president of Umbra, in business for 25 years. "You can't pass on price increases. Consumers understand that you have to pay more at the pump but not at the retailer."

Angie DeRosa, a reporter for Plastic News, said the entire housewares industry is getting hit hard by the soaring price of resin. Polypropylene experienced a net increase of 13 percent since Aug. 1 of last year, a situation that included the impact of last year's hurricanes.

"2005 was a terrible year. There's been a shakeout among injection molders in North America with several bankruptcies. Many can't keep their heads above water," she said.

While some are succeeding in passing costs onto suppliers, that's been a trend in only the past 12 months, she said. And polypropylene will see more increases this year as well, DeRosa added.

Rubbermaid, which once had the biggest manufacturing footprint in the United States, has shifted production to Mexico and China. It introduced other innovations, like wood-plastic composites, alternative materials and innovative designs, such as collapsible containers.

Other manufacturers maintain domestic production close to their major markets because to ship large storage items from overseas is cost-prohibitive. But still, freight costs are slamming these manufacturers.

Other plastic companies such as Stylemaster, which made storage containers "have fallen by the wayside," and still others are changing their names or shifting their marketing strategies. Tupperware, for example, is putting a greater emphasis on fashion. That company has only one facility left in the United States, she said. "Many are making changes. They don't want to be associated with plastic."

DeRosa predicts there are only going to be two or three "players" left in the United States. Housewares companies "are trying to take out labor and introduce more automation to try to compete with China," she said. "No one has any faith in prices coming down."

Rising petrochemical costs have also affected the bedding industry, which relies on vinyl packaging for a number of its products. "The higher costs have become a permanent part of our business and we have had to react," said Joe Blazar, Leggett & Platt's director of marketing, consumer products urethane division.

To combat the costs, which were soaring by almost 20 percent, Leggett, which has a growing memory foam bedding business, started to source the majority of its packaging from overseas suppliers, instead of relying on just U.S. distributors. The company has been able to keep its costs neutral, instead of passing the increases down the supply chain.

The escalating price of petroleum, a key ingredient in melamine and acrylic tableware as well as resin figurines, continues to put the squeeze on the tabletop and giftware industries, but it has not dampened enthusiasm for the products among vendors, retailers or consumers. More high-end vendors have entered the category, such as French manufacturer Gien, which recently introduced melamine trays, while those already in the business work to expand it. TarHong Direct, a Chinese factory that is among the large distributors of melamine to the market, has begun to sell directly to retailers and made its first appearance at the recent spring tabletop show in New York. Retailers, for their part, see the value in high-quality melamine tableware and have put more merchandising muscle behind increasingly fashionable designs.

Major Appliance Makers Continue To Take Major Steel Cost Hits

White goods production costs are white-hot, as major appliance manufacturers continue to suffer from inflated steel costs.

A handful of major appliance makers said that while 2006 steel price gains have not yet matched those of 2005, costs continue to mount.

Whirlpool this year expects to incur up to $100 million in additional steel and other raw material costs. This comes in the wake of a hefty $800 million cost increase it took in the last half of 2004 and beginning of 2005, a Whirlpool spokeswoman said.

Due to competitive retail pricing pressures, some manufacturers have been forced to stomach rising steel and other material costs-or at least temper the price increases passed to retail.

"I suspect that most of the industry, including us, are feeling pressure. However, we are in a competitive market," said Tim Kavanaugh, director of merchandising at LG Electronics. "The pressure is not high enough for us to take the risk to raise [major appliance] prices. Especially as a new player, this is very risky," he added.

John White, BrandSource's manager of major appliances, said the retailer has seen about a 10 percent white goods price increase over the past two years, adding "the costs, however, have probably risen [for manufacturers] 40 percent."

Electrolux recently passed through a relatively minimal price increase to its retail partners, according to a May 2006 letter to its retail partners obtained by HFN. The letter stated that "while we have, and continue to take, aggressive productivity actions to offset the cost pressure created by material inflation, it is simply too great to offset. As a result, we will be increasing wholesale prices approximately 5 percent on our appliance products, effective with July 1, 2006, shipments."

Major appliances is not the only home goods sector suffering from the steel squeeze.

In tabletop, the flatware category has suffered the most from the roller-coaster ride of stainless-steel prices. What was once a place setting business has become a boxed set business, as manufacturers attempt to make up margins. And as in the past, according to one executive, price increases are being passed along to consumers after manufacturers absorb as much as they can.

In the cookware category where quality, function and brand loyalty is so important, the integrity of the products can not be upheld without some type of price increase, said one industry expert.

Rising Metal Costs Passed to Consumers

The prices of silver and gold have risen dramatically, resulting in significant price increases across the board.

Silver has increased 41 percent over the past 12 months, and gold 32 percent during the same time period, according to the Silver Institute.

In many cases, sterling increases have already been passed along to the consumer, showing up most notably in flatware prices. For example, a five-piece place setting of sterling silver flatware that cost less than $200 last year might be around $260 this year. And these increases simply cannot be avoided, according to industry experts.

Products that contain brass, nickel, copper, zinc and aluminum are all being affected as well.

In the lighting industry, vendors lamented that the costs of copper and zinc have doubled since January, while aluminum spiked to an all-time high in May and remains, with nickel, at levels considerably higher than one year ago. Price increases range from around 5 percent on certain pieces to 15 to 20 percent on larger solid brass items.

Other trouble areas are bath fixtures and anything made from solid brass, particularly outdoor lighting, although all lighting contains copper wire.

Vendors are trying to substitute materials wherever possible, using cast aluminum or steel in place of brass, or using polyresin or steel endcaps, bobeches and other components in place of the heavier and costlier brass.

Cotton Holds Firm

Cotton prices have remained stable, according to executives in the rug and textiles industries.

For the rug business, the acrylic and petrochemical-based fibers are the ones causing the pricing headache, and Renee Ringstad, vice president of merchandising for Homefires, said natural fibers, such as wool and cotton, may be feeling positive effects due to the sky-high oil prices.

"It's making the difference between cotton, wool and acrylic a moot oint in as far as pricing," Ringstad said. Historically, she noted, the natural fibers would have translated to a higher price tag, but that gap is closing.

Walter Chapin, president of Company C, said he "sensed pressure more a year or two ago with wool and cotton going up a bit, but we haven't seen any price increases from our suppliers lately. I would say it's holding firm on the down side."

Hollander Home Fashions, which is in both the fashion and basic bedding business, also said there had not been any noticeable increase in cotton prices over the past six months. In addition, the company said any cost increases are being offset by suppliers in other areas in order to keep the prices stable.

John Bradshaw, vice president of sales for Colonial Mills, said cotton is "always a fluctuating thing." He has watched the fiber's pricing throughout a career that has taken him through the sheets and towels businesses before moving onto rugs. Bradshaw said that while his company's overall cost for raw materials has increased about 60 cents per pound in the past 12 to 18 months, that bump is all due to synthetics. Colonial Mills has not witnessed any increase in cotton pricing, although Bradshaw said, "historically in fibers, if one has a good valid reason for going up," the others may follow suit simply because the demand for their own product will jump.

The latest monthly economic letter from Cotton Inc. is in tune with what the vendors are feeling in their own business. The June report states the "USDA suggests little changes to 2005/06 fundamentals."

Petroleum Price Changes

Year; Price; % Change

2001; $25.98; NA

2002; $26.18; .8%

2003; $31.07; 18.7%

2004: $41.51; 33.6%

2005; $56.64; 36.4%

2006; $70.84; 25.1%

*As of May.

U.S. dollar per barrel of crude oil: Cushing, OK WTI Spot Price FOB

Source: U.S. Energy Information Administration

Steel* Price Changes

Year; Price; % Change

2001; $213; NA

2002; $264; .23.9%

2003; $305; 15.5%

2004: $502; 64.6%

2005; $498; -.8%

2006; $516; 3.6%

*As of March.

World prices, U.S. dollar per ton. *Hot rolled coil.

Sources: MEPS International Ltd., for 2006; steelonthenet.com for all others.

Gold Price Changes

Year; Price; % Change

2001; $260; NA

2002; $320; .23.1%

2003; $360; 12.5%

2004: $400; 11.1%

2005; $420; 5%

2006; $650; 54.8%

U.S. dollar per ounce

Source: Goldprice. Dollar amounts are approximate.

Silver Price Changes

Year; Price; % Change

2001; $4.50; NA

2002; $4.00; -11.1%

2003; $4.50; 12.5%

2004: $6.30; 40%

2005; $7.00; 11.1%

2006; $9.90; 41.4%

U.S. Dollar per ounce. *High for month.

Source: futures.tradingcharts.com. Dollar Amounts are approximate except for May 2006.

Cotton Price Changes

Year; Price; % Change

2001; $.50; NA

2002; $.40; -20%

2003; $.62; 55%

2004: $.70; 12.9%

2005; $.56; -20%

2006; $.55; -1.8%

New York Nearby' prices: U.S. dollar per trading value of a futures contract on a 100-bale lot of Strict Low Middling 1-1/16-inch cotton.

Dollar amounts are approximate.

Source: Cotton Incorporated

Caption(s): The cost of stainless steel has forced what was once a five-piece place setting business to turn to a boxed set business. Seen here is WMF's Verona. / Rubbermaid introduced this cedar and plastic composite as the cost of resin continues to increase. / Left: Silver prices for tabletop products, such as this tray and cup from Empire Silver, are being passed along to the consumer. / Below: Light fixtures, particularly brass outdoor and bath vanity lights, such as this one from Murray Feiss, are particularly hard hit by price increases.
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Title Annotation:raw material price hits home furnishing industry
Publication:HFN The Weekly Newspaper for the Home Furnishing Network
Geographic Code:1USA
Date:Jul 10, 2006
Words:1948
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