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Top 25 furniture makers seek growth through exports.

Despite some signs of improvement, the economic forecast is uncertain. In order to compensate for this uncertainty, WOOD & WOOD PRODUCTS' Top 25 residential furniture manufacturers are becoming more competitive by looking toward foreign markets and by investing in world-class technology.

Inflation is down. Interest rates are low. Demand is pent up. These are some of the reasons why the furniture market is improving, especially at the lower price points, said Doug Brackett, executive vice president of the American Furniture Manufacturers Assn. Though the market has been up and down the past few years, Brackett said, "the trend is toward continued improvement."

Another good sign is that housing activity is staying brisk and that rates are remaining low, said Jerry Epperson, furniture analyst at Mann, Armistead & Epperson. Residential building construction in April was up 3 percent over March 1993 and up 4 percent over April 1992, according to the F.W. Dodge Div., McGraw-Hill.

As the economy improves overall, the residential market is picking up, especially in certain segments such as bedroom and motion furniture. During a recession people tend to put off buying bedroom furniture, Epperson said, and that area is growing now. Motion furniture, due to the rise in home theater, has improved as well. Also, increased mobility, especially with people under age 50, has helped boost residential furniture sales.

Optimism tempered with caution

Though first quarter shipments of residential furniture were strong, they have dropped precipitously as has consumer confidence. The first quarter was boosted by euphoria over Clinton's election and continued payments to compensate hurricane damage, Epperson said. Yet, the second quarter has weakened due to apprehension over Clinton's proposals and policies and the absence of any significant tax refunds, Epperson said. Furthermore, he said there is concern that interest rates are going to rise.

Growth through exports

With the U.S. economy uncertain, many manufacturers are looking toward exporting as an area of growth. In 1992, the major exports for residential furniture were Canada (50.7%), Mexico (11.3%), Europe (9.7%), the Mideast (9.3%) and Japan (4.9%), according to the U.S. Department of Commerce, International Trade Administration. Exports to Canada and Mexico have grown steadily since 1989, in TABULAR DATA OMITTED part due to trade agreements.

Under the US-Canada Free Trade Agreement, tariffs have been reduced annually since 1989 and were eliminated on TABULAR DATA OMITTED Jan. 1, 1993; American furniture manufacturers have profited considerably. Brackett said over the last four or five years industry shipments to Canada have almost doubled, producing what he describes to be a "win-win" agreement. Douglas Cohen, vice president of Douglas Furniture, said the U.S.-Canadian trade agreement has resulted in a "much more competitive playing field."

Many U.S. manufacturers also offer a broader range of selection than Canadian manufacturers, said John Gerber, head of Canadian sales for Ladd Furniture, and that has helped increase exports. For example, Gerber said, a Canadian case goods manufacturer might offer three or four collections while a comparable U.S. manufacturer offers three times as many selections.

Furthermore, Gerber expects international trade with Canada to increase if the exchange rate and econonmic conditions of the two countries remain reasonable.

NAFTA targets exports to Mexico

The proposed North American Free Trade Agreement (NAFTA) would gradually reduce and eliminate tariffs on goods entering Mexico. Based on 1990 Mexican import data, 18 percent of U.S. products will enter Mexico duty-free immediately. Another 8 percent of the tariffs will be phased out over 5 years, 24 percent phased out over 10 years and 50 percent over a modified 10-year staging period, according to the U.S. Department of Commerce, International Trade Administration.

Currently, virtually all Mexican products enter the United States duty-free and will continue to do so under NAFTA. (Cotton mattresses have a 6 percent duty but currently Mexico does not export this product to the United States).

Since past tariff reductions have resulted in increased exports, NAFTA is expected to significantly benefit U.S. furniture manufacturers, according to the U.S. Department of Commerce, International Trade Administration. Between 1986 and 1990, as the Mexican Government liberalized trade and tariff barriers, U.S. residential furniture exports to Mexico increased at a compound annual rate of 70 percent, according to the U.S. Department of Commerce. So, as Mexican tariff rates of 10, 15 and 20 percent are eliminated under NAFTA, exports presume U.S. exports will continue to grow accordingly.

Although the agreement has been signed by all parties, the U.S. Congress has not approved it yet. Concern over how to enforce environmentally sound manufacturing and worker rights have brought a trilateral commission together. Pending successful negotiations of the side agreements, NAFTA's target implementation date is January 1, 1994.

Many furniture manufacturers see Mexico as a terrific market because it has a large population and its economy is expected to grow. Singer Furniture's exports increased steadily since the company established a warehouse in Mexico years ago, said Bill Foster, and NAFTA will help considerably. The Mexican market is interested in the quality and style of U.S.-made furniture, Cohen said, and in particular, said that contemporary dining rooms do well in that market.

Other improvements

Other manufacturers, such as Pulaski Furniture, have upgraded their facilities and production methods to remain competitive. "We will be forced to increase manufacturing efficiencies to offset escalating lumber costs which we cannot control," said John Wampler, executive vice president of Pulaski Furniture. CNC machinery, cellular manufacturing facilities and Total Quality Management production systems have also been adopted by many of the Top 25.

Economic concerns range from managing the cost of components, labor and lumber to maintaining growth rates. Singer Furniture, to compensate for an economy that it feels will remain flat for some time, is employing aggressive marketing to keep in touch with customer demand, said Foster.
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Copyright 1993, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Author:Dunne, Beverly
Publication:Wood & Wood Products
Article Type:Industry Overview
Date:Jun 1, 1993
Words:974
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