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Processed wood products: the challenging U.S. market.

The large U.S. market for wooden furniture, builders' woodwork and other processed wood products is growing, although moderately, and should offer opportunities for developing country exporters in some product lines, according to a new ITC market study In 1990 U.S. imports of wooden household furniture and components came to almost US$2.5 billion, wooden picture frames $89.5 million, wooden doors $73.6 million, wooden kitchenware $57.5 million, wooden flooring $21.7 million and wooden windows $15.6 million. Although competition is strong from domestic producers and foreign suppliers, exporters in developing countries should be able to find openings if they can furnish suitably priced items in the required styles and materials.

Developing countries already hold large shares in some of these imports, particularly for furniture, doors, flooring, picture frames and kitchenware. By drawing upon certain advantages that they may have in terms of lower labour costs and the availability of raw materials, and by focusing on well defined product ranges, they should be in a position to increase their sales to this market over the next several years.

Furniture and components

In 1990 the United States imported $3.3 billion worth of furniture and components. Of this, about $2.5 billion consisted of wooden bedroom, dining-room and occasional furniture and components. Imports that year were slightly lower than in 1989, reflecting an overall slowdown in furniture purchases, in contrast with the rapid import growth in the mid-1980s. Sales of furniture in general are expected to pick up during the next several years, growing at an estimated 3% annually.

More than 100 countries and areas supply furniture and components of all categories to this market. Ten of these accounted for almost 85% of such imports in 1990. Over half of these imports come from developing countries.

The import share of Taiwan Province (China), the main supplier, fell from 29% in 1989 to 25% in 1990. The shares of the other principal foreign suppliers of furniture and components to this market that year were Italy with 17%, Canada 14%, Mexico 7%, Denmark and Yugoslavia each 5%, Germany 4%, Thailand 3%, United Kingdom 2% and China almost 2%. Both Mexico and China have substantially increased their sales of these products in recent years.

During the next few years furniture producers in Taiwan Province (China) are expected to move to higher priced, higher quality goods in an effort to maintain their market share as their production costs rise. More moderately priced furniture and parts will probably increasingly originate from countries with lower wage levels such as Indonesia, Malaysia and Mexico. East European countries may also eventually become competitors on the world furniture market because of their strong woodworking tradition and low labour costs.

Domestic producers will, however, continue to be the major suppliers to this market. Many U.S. companies are investing in technology that can offset their high labour costs. Retailers' demands for fast delivery also give local producers a competitive edge.

Furniture:

The U.S. furniture market is divided into two major categories: household and office furniture. Of the two, household furniture offers better market opportunities for exporters in developing countries. It includes furniture for the living room, dining room, kitchen, bedroom and outdoors, plus children's furniture.

The wooden furniture sold on the market includes ready-to-assemble (RTA) and fully assembled items such as chairs, storage elements and wall units, both finished and unfinished.

Total retail sales of ready-to-assemble furniture are estimated at between $2 billion and $3 billion yearly, accounting for 6% to 10% of retail furniture purchases in the United States. Demand for furniture in this form is expected to grow more rapidly over the next decade than sales of conventional, fully assembled products. The lower freight costs of RTA and its increasing popularity should be considered by foreign suppliers formulating an export strategy for this market.

The principal RTA items sold on the market are television stands, cabinets for stereos and video cassette recorders, occasional tables, and items for young people such as beds, bookshelves, desks and dressers.

Retail sales of unfinished furniture are estimated at $1 billion a year. Suppliers with limited finishing facilities should be able to find opportunities in the market for unfinished or ready-to-finish furniture.

Materials: U.S. consumers prefer furniture made of oak, pine and ash. These three account for approximately 45% of all wooden furniture sales on the market. Close-grained woods such as cherry, maple and mahogany are popular in "American Traditional" designs and are used in 22% of wooden furniture retailed.

Prospective suppliers to this market should attempt to use woods that resemble oak, cherry or mahogany, or apply finishes that look like these woods. Rubberwood, for instance, can be finished to give an oak-like appearance. Such substitution is widely practiced in lower priced furniture products.

In addition to these woods, furniture purchased in the United States contains the following wood-based materials: particle board, medium-density fibreboard (MDF) and veneer. Particle board and MDF are used as core material for veneers and other laminates. MDF is used for components with exposed, shaped edges. These materials are substituted for solid wood because of cost and the ease of producing decorative veneer effects such as in-laying and marquetry. Given current environmental pressures and growing production costs in the United States for solid wood components, increasing use of these wood-based panels in furniture is forecast, especially for storage elements, table tops (particularly in the low- to medium-price ranges) and ready-to-assemble items.

Many articles such as chairs, table legs and bed posts are usually produced from solid wood for strength as well as decorative reasons. Items in these lines offer good sales prospects for producers in developing countries.

Styles: This market is dominated by two styles of wooden furniture, "American Traditional" (eighteenth century) and "Transitional Contemporary, "with the latter being the fastest growing category. Around 23% of total sales are in the "American Traditional" style, 18% in "Transitional Contemporary" and 34% in a mix of styles (such as "Country" and "English Traditional"). These designs can be produced using basic woodworking skills and machines.

Distribution channels: Conventional furniture retailers carrying a broad line of products account for nearly half of all furniture sales in the United States. An additional 15% is made by specialty furniture stores that focus on one product category or style. The remaining consumer sales are made by mass merchants, department stores, home centres, rent-to-own stores (specializing in renting furniture) and "gallery stores," which deal exclusively with one manufacturer's products.

Chains of specialty furniture retailers, which carry a standard product line in all of their stores, are currently out-performing all other types of furniture outlets. One result is the concentration of furniture sales in fewer retail companies. Prospective exporters to the United States should select intermediaries who have good contacts with such outlets.

Sales to retailers and other merchants are made through the producer's own sales staff and independent representatives. Both large and small manufacturers as well as importers use independent sales companies to work with retailers. These companies usually represent two or more furniture manufacturers or importers in a specific geographic region. They generally work on a commission basis.

Only a small percentage of ready-to-assemble furniture is sold through conventional furniture retailers. The rest is distributed through mass merchants or discount retailers, home centres and specialty furniture stores. Outlets selling such furniture generally stock for immediate delivery.

Most unfinished furniture is sold through retailers specializing in unfinished items and home centres with do-it-yourself departments. In many cases large discount chains and home centres that carry ready-to-assemble furniture also sell unfinished items.

Furniture components:

Wooden furniture components consist of parts for manufacturing furniture and cabinets, which in this market are usually referred to as "dimension stock."

The U.S. market for furniture components is expected to expand by 4% to 6% over the first half of the 1990s. This growth will result primarily from the increased use of purchased wooden components in furniture production. A small woodworking enterprise with no experience in exporting or in producing furniture may choose to export simple, unfinished furniture parts as a first step in international marketing.

Components purchased by U.S. furniture companies are basically of three types: rough items (parts cut, ripped and planed to specific lengths, widths and thicknesses); semi-machined parts (a rough piece that has undergone one or more additional processes such as moulding, tenoning, routing or shaping); and fully machined components (completely machined and ready for final sanding, assembly and finishing).

The species of wood in demand for such components are oak and other open-grained woods, cherry and pine. In addition, upholstery producers purchase frame components in a variety of lower quality hardwoods.

Furniture manufacturers obtain their components from dimension stock producers and distributors, such as importers, representatives or other intermediaries. Foreign suppliers of components can use these channels to sell their goods to U.S. furniture manufacturers. Most domestic buyers choose an importer or another intermediary to handle communications, financing and freight arrangements with foreign suppliers.

Quality requirements:

No generally accepted quality standards exist for wooden furniture. Exporters should therefore request their customers to define their quality requirements precisely. In most cases foreign suppliers are expected to produce a sample for the approval of a prospective buyer. Importers should indicate their approval of the sample's quality in writing before an exporter starts production.

For furniture components the National Dimension Manufacturers Association has developed "Rules and Specifications for Dimension and Woodwork." Exporters should use these specifications as a guideline.

Builders' woodwork

Builders' woodwork items with the highest potential for developing countries in the U.S. market are "millwork" (such as wooden doors, windows, mouldings and stairwork) and wooden flooring, both softwood and hardwood.

Millwork:

Less than 3% of current sales of millwork on this market are supplied by imports. In 1990 imports totalled $254.8 million, down by almost 9% from 1989. The drop was the result of a slowdown in the U.S. construction industry. Wooden mouldings accounted for 61% by value of these imports, wooden doors under half of the figure for mouldings and other wooden millwork the remainder.

Demand for millwork in the United States is expected to grow annually by about 1% to 2% over the next several years as construction activity picks up again. Although the overall slow increase in sales will probably mean low growth in imports of millwood in general, prospects for wooden moulding are expected to be brighter.

Demand for wooden flooring is also foreseen to rise slightly, by 1.5% to 2% annually over the next five years. This growth will reflect the expansion expected in residential construction, remodelling and repair.

The leading suppliers of these products to the United States, with the exception of Canada and Italy, are developing countries and areas, whose share in 1990 was 72%, or $184.3 million. The main sources among this group are Mexico with 40% of total imports, Taiwan Province (China) 10%, Brazil 7%, Malaysia 6%, Indonesia and Philippines each 3%, Costa Rica 2% and Chile 1%. The shares of Canada and Italy that year were 14% and 4% respectively.

Between 85% and 90% of the millwood items produced in the United States are made of softwood, especially ponderosa pine and fir. With the exception of custom-made products, all species used in such items are light in colour. Exporters of millwood to this market should therefore use a type of wood that has colour and working characteristics comparable to woods used locally. Some U.S. manufacturers are experimenting with light hardwoods, such as poplar and cottonwood, because of price increases in softwoods. Such species are acceptable particularly for products that will be painted, rather than stained or varnished.

Wooden doors: Imports have made up less than 3% of total sales of wooden doors in recent years. The leading suppliers in 1989 and 1990 were Brazil, Canada, Mexico and Taiwan Province (China). Nearly 79% of all wooden doors imported during those years came from developing countries and areas.

An important component of "flush" doors is the door "skin" - the plywood panel that forms the surface of the door. Rising costs of labour and raw materials have forced door manufacturers in the United States to purchase most of their door skins from foreign suppliers. These imports are in birch or tropical hardwoods such as meranti and lauan. Canada and Taiwan Province (China) are the principal sources of birch flush doors, while Indonesia, Malaysia and Taiwan Province (China) lead in imports of tropical hardwood doors.

Wooden windows: Imports accounted for less than 1% of the wooden windows purchased in the United States in 1989 and 1990. Reasons for the low import share include the difficulty of foreign suppliers to make deliveries rapidly and furnish the particular style of windows used in the United States. The majority of homes have double-hung windows with a sliding sash, a style that is particular to North America. Two of the top three suppliers, Canada and Mexico, are close enough to the market to be able to fill orders on short notice and to be familiar with the required product designs. Their 1990 import shares were 45% and 15% respectively. Other developing countries and areas selling to this market are Brazil with a share above 2%, Taiwan Province (China) nearly 2%, and Guatemala and Philippines each about 1%.

Wooden mouldings: The largest category of millwork imports is wooden mouldings, which in 1990 amounted to $156 million. The leading sources of imported mouldings are Mexico (over half of such imports, with about 70% of this in softwood); Taiwan Province (China) (about one fourth); Canada (around 15%); and Italy, the remainder.

Hardwood mouldings, which account for about 15% of these imports, are supplied mainly by Indonesia and Malaysia, which have import shares of nearly one-third and one-sixth respectively. The two countries are expected to increase their sales of wooden mouldings to the United States as they shift production to higher value wood-based products.

Other: Among other millwood products in demand are stairwork (such as treads, risers, rails, balusters and posts); wooden blinds and shutters; porch columns; and railings. Most of the stairwork sold in this market is made of hardwood, particularly oak, while the other items are usually manufactured from softwood.

Wooden flooring:

Imports of wooden flooring fell from 13% to 9% of apparent consumption during the 1985-89 period, in part because of lower costs of local raw materials. Hardwood flooring accounts for nearly 95% of these imports, with softwood the remainder.

The leading supplier in 1989 and 1990 was Malaysia, followed closely by Canada, with import shares of 30% and 28%. Indonesia increased its sales the most rapidly, with its orders in 1990 rising by 125% in value over the year before. Its 1990 share of wooden flooring imports was 11%, followed by Brazil with 8% and Denmark 6%. Developing countries and areas as a whole held 62% of this market.

Quality specifications:

Quality standards for builders' woodwork are published by numerous trade associations. They define allowable material defects such as knots, splits and warp; specify pattern and dimensional standards; and provide grade or quality classifications. For windows and doors the source of quality specifications is the National Wood Window and Door Association (1400 E. Touhy Avenue, Des Plaines, IL 60018); for mouldings, the Western Wood Products Association (522 SW Fifth Avenue, Yeon Building, Portland, OR 97204); and also the Wood Moulding and Millwork Producers Association (Box 25278, 1730 SW Skyline Blvd., Portland, OR 97225); and for flooring, the National Oak Flooring Manufacturers Association (22 North Front Street, Suite 660, Memphis, TN 38103).

Distribution channels:

Builders' woodwork is sold primarily in three types of retail outlets: large retail chains, independent stores and lumber yards. In addition, specialty retail stores for these products are also appearing in the market. Most suppliers of builders' woodwork attempt to sell to all of these types.

Large retail chain stores in the form of "home centres" have been the principal outlet for builders' woodwork over the past several decades and now account for about half of all sales. These stores sell to both individual consumers and construction contractors. They stock standard items of builders' woodwork and also sell custom-made products supplied direct from the manufacturer. Home centres usually purchase all merchandise at a central buying office and negotiate direct with producers. They order large quantities and demand low prices.

Independent stores and lumber yards are the other large retail outlets for builders' woodwork. Independent stores usually buy from cooperative buying services, especially for standard builders' woodwork, and from producers, and some lumber yards do likewise. Cooperative buying services are companies that purchase for their member firms. Most independent stores and lumber yards are members of one or more such groups. Cooperatives account for approximately 20% of total sales of builders' woodwork. Like the purchasing departments of home centre chains, they order in large quantities and at low prices. Independent stores also buy about 10% of their builders' woodwork direct from producers or importers, particularly in the case of specialty or custom-made items and for small orders.

In recent years specialty retail stores for flooring, doors, windows and shutters have increased in number. Around 20% of their supplies are obtained direct from manufacturers and importers. These outlets compete by offering services that home centres and other retailers cannot provide, such as custom sizing, shaping, finishing and installation. Prices in specialty stores are higher than in other outlets, and suppliers can likewise get higher prices for orders from these outlets.

The three basic channels for getting builder's woodwork into these retail outlets are sales representatives, distributors and company sales staff. Sales representatives are the most commonly used of the three. They are independent intermediaries who usually receive a 5% commission on their sales. They generally prefer to sell to home centres and cooperatives, rather than independent stores and lumber yards, as orders are in larger volumes and require fewer sales calls.

Many suppliers of builders' woodwork sell only through distributors, who are similar to sales representatives except that they have their own warehouses and service specific geographic regions from them. Distributors are most effective in selling to independent stores and lumber yards. One disadvantage of using distributors is their insistence on exclusive representation, which may hurt sales to home centres that do not buy through distributors.

Suppliers also sell through their own sales staff, whose role includes coordinating customized orders with specialty retailers and handling large accounts such as home centres or cooperatives.

It is recommended that exporters of builders' woodwork use a combination of these three channels, with sales representatives being responsible for selling to home centres and cooperatives, distributors to independent stores and lumber yards, and company sales staff for specialty stores.

Other wood products

Various other processed wooden items offer opportunities for exporters in developing countries. These include tableware and kitchenware; picture frames; handles for tools; and broom and brush blocks.

Table and kitchenware:

Wooden tableware and kitchenware is a product range with bright prospects for foreign suppliers. It includes towel holders, recipe boxes, "lazy susans" (revolving shelves), cutting boards, spoons and forks, and salad bowls.

Imports of wooden kitchenware have come to over $57 million in recent years. Exporting countries with low labour costs have a significant advantage over U.S. manufacturers in this line. The top four foreign suppliers are developing and account for 75% of all such imports: Taiwan Province (China) ($17.5 million in sales to this market in 1990), Thailand ($17.4 million), Philippines ($6.1 million) and China ($2.5 million). The other main sources, in descending value of exports, are United Kingdom, Japan, Malaysia, Italy, Germany and Mexico.

These products are packaged in clear shrink-wrap and are labelled for point-of-sale display. A prospective exporter should have access to such packaging materials or rely on the importer for this. The ability to provide point-of-sale packaging is a competitive advantage in this market.

Wooden kitchenware is sold in many types of stores in the United States. Exporters in developing countries should focus on supplying the major buyers of large retail firms, as they provide an outlet for substantial volumes of individual items. Of the top 100 retailers of tabletop products, the largest are the mass merchants. Department stores are the second leading category and warehouse stores the third. Warehouse stores are among the fastest growing outlets for tableware. Chains of specialty tabletop and houseware retailers have also become increasingly important distribution channels for wooden kitchenware. Many specialty stores operate mail-order services. Other retailers of kitchenware include hardware stores, home centres, drugstores and supermarkets.

Wooden picture frames:

Picture frames range from small items to large decorative units. Imports in recent years have been around $90 million. Most foreign purchases come from Mexico, Thailand and Taiwan Province (China), which together accounted for over four-fifths of these imports in 1990. Other developing countries and areas supplying the market are China, Indonesia, the Republic of Korea and Hong Kong. Among developed countries Italy and the United Kingdom are the leading sources.

Picture frames are also packaged in clear shrink-wrap for point-of-sale display. Exporters should be in a position to provide such packaging materials either on their own or through their importers.

Wooden picture frames are sold in a wide range of retail stores, including mass merchants and general merchandisers. These retailers usually purchase direct from the manufacturer or through distributors or brokers. Although both of these channels are suitable for foreign suppliers, exporters in developing countries would be advised to focus on sales to major buyers.

Handles and brush blocks:

Handles for tools and brooms and brush blocks range from simple elements for further processing to finished items. Imports of these articles have been around $26 million in recent years. A major portion of the foreign supplies come from developing countries, with Indonesia, Honduras and Malaysia being the leading sources. Other exporters from developing countries and areas include Taiwan Province (China), Singapore, Brazil, Chile and Mexico. Italy and Finland are additional principal suppliers. Producers in developing countries with machining facilities for moulding, shaping and drilling wood could consider such items for export.

These products are packed in bulk according to the buyer's specifications. Wooden handles and blocks are sold to tool, broom and brush manufacturers either direct or through distributors or brokers and importers.

Products with prospects

While the market for builders' woodwork is highly competitive, with only limited possibilities for foreign suppliers, certain products in this category do offer sales opportunities for exporters in developing countries. In the case of furniture and furniture components, market prospects for exporters with relatively low labour costs are bright. Various other wooden articles also offer sales possibilities as mentioned above. Among the products offering the most favourable outlook in the first two categories are:

Cut stock and mouldings:

Cut stock (rough millwork components) and mouldings may be export possibilities for producers in developing countries with supplies of pine or an equivalent species. Cut stock is purchased by many window and door manufacturers in the United States.

Various countries, for example Brazil and Chile, have a pine species that can replace ponderosa pine in such applications. If pine or an equivalent species is unavailable, a prospective exporter could consider producing cut stock for hollow-core door frames.

Large quantities of quarter-round mouldings in red or brown wood are used to trim hardwood floors. Close-grained woods are desirable for these items for painting purposes.

Furniture components:

Firms with facilities for kiln-drying and cutting lumber could consider producing rough furniture components for export. Those with equipment for shaping, turning, drilling or routing could manufacture fully machined parts ready for assembly.

Rubberwood and other tropical timbers are acceptable in the U.S. market for many such items. Pine components are also purchased in large volumes.

Ready-to-assemble furniture:

An enterprise that can machine ready-to-assemble (RTA) furniture but cannot apply a quality finish should aim at the market for unfinished RTA furniture. As mentioned above, the large mass merchants feature this type of furniture along with fully finished items. Furniture producers in the United States also purchase large quantities of chairs and tables for assembly and finishing in their factories.

Fully finished furniture:

Manufacturers in developing countries with well developed facilities for finishing furniture could enter this segment of the market. Many types of finished furniture are imported into the United States. Wooden chairs with solid seats and tables offer good sales possibilities for foreign suppliers. The import market for such items as the bow-back "Windsor" chair is substantial.

Production requirements

Certain production techniques are important for producers of such articles seeking entry into the U.S. market:

Lumber drying:

Kiln drying is essential for builders' woodwork, furniture and furniture components, as well as for most other secondary wooden products sold on this market. If an exporter's plant lacks kilns capable of drying to a moisture content of 7% to 9%, only those items that can be sold air-dried, such as garden furniture, should be exported.

Finishing:

For furniture and kitchenware, a basic finish is required for the wood. A producer planning to manufacture goods ready to retail should have appropriate finishing facilities. A firm with no such facilities could consider selling items in unfinished form.

Market entry

Direct sales to retailers and producers are impractical for small exporters approaching this market. Most major U.S. purchasers of imported wood products use the services of importing distributors or brokers, and exporters in developing countries should consider using such channels to develop initial sales. A major advantage of distributors and brokers is that they have an established customer base in the United States and a knowledge of product demand. They usually work in coordination with buyers in the market, arranging forwarding and shipping, and they handle letters of credit. Large distributors and brokers frequently employ on-site inspectors in the supplying country to expedite production and check quality requirements.

Selecting an intermediary:

Two basic sources of information can be used to identify a good distributor or broker in this market: the national trade promotion agency in the exporter's country and published importers' lists. Two books updated annually are Directory of United States Importers (issued by The Journal of Commerce, 100 Wall Street, New York, NY 10005), which lists importers of many products, including wooden furniture and components, and Imported Wood Purchasing Guide (by Miller Publishing Company, P.O. Box 34908, Memphis, TN 38184-0908), which covers U.S. and Canadian importers of lumber, mouldings, veneers, furniture components and other wooden products.

Once a prospective distributor or broker has been identified, the qualifications of that person should be checked. Customers listed as references should be contacted, and the person's financial situation can be verified. It is also important to ensure that the distributor or broker has a knowledge of woodworking.

Exhibitions

Trade fairs and exhibitions can be an important promotional technique in the U.S. market for foreign suppliers of wooden products. At such events exporters can show their products to prospective buyers as well as see what the competition is offering. Exhibiting overseas is expensive, however, and exporters should determine through their distributors or brokers if sufficient interest exists in their products to justify such investment.

Numerous furniture exhibitions are held in the United States. Some are national, others are regional and certain shows are organized for specific products.

Among national exhibitions the most important one for finished furniture is the International Home Furnishings Market in High Point, North Carolina. The leading U.S. manufacturers and importers exhibit their products to the retail trade at this event.

Three major regional exhibitions take place in the country for fully finished furniture, usually in January and July (exact dates should be checked each year). These are in San Francisco, Atlanta and Dallas (see the box on page 14).

Specialized exhibitions for products such as garden furniture and furniture in contemporary designs are also held throughout the country.

In the case of unfinished furniture and components, four exhibitions are organized in the United States annually or biennially. They are shown in the box on page 15.

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Arthur G. Raymond is an ITC consultant on the international marketing of wood products. This article is based on a new ITC study that he wrote, The United States Market for Secondary Processed Wood Products.
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Author:Raymond, Arthur G.
Publication:International Trade Forum
Article Type:Industry Overview
Date:Apr 1, 1992
Words:4702
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