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Top 25 furniture makers.

Things are looking better for Wood & Wood Products' Top 25 residential furniture makers because of a positive housing market and increased trade opportunities.

Despite a 5 percent decline in housing starts for April, economist at the F.W. Dodge Division of McGraw Hill are still projecting an overall 20 percent jump in new housing units for 1992. However, according to furniture analyst Jerry Epperson of Mann, Armistead & Epperson, U.S. furniture manufacturers will not reap the rewards of the housing rebound for another three to five years.

"New housing starts do very little to help with the residential furniture market," Epperson said. "It takes approximately six to 12 months before a home is completed, and another two to five months before it's occupied. There's also a lot of expenses associated with buying a new house, such as the window dressings and landscaping, for example. So basically, the boom in housing starts won't help the furniture industry for another two to three years.

"What we're seeing now are the impacts from the 1985-1988 housing starts," Epperson said, adding that housing starts reached a high of 1.8 million units in 1986. As sales of existing homes rise, residential furniture sales figures should increase accordingly. "When people buy existing homes, they already have landscaping. So they usually take the money and put it into furniture," Epperson said.

Top 25 company sales mirror housing market growth

Although the majority of companies reported setbacks for the fiscal 1991 sales year, total sales for the WOOD & WOOD PRODUCTS' Top 25 companies rose 4.3 percent over 1990 figures to $7.4 billion. Those recording fiscal sales increases include: Interco/Broyhill and Lane (No. 2), which is emerging from Chapter 11 debt restructuring; Sauder Woodworking (No. 8); Klaussner (No. 9); O'Sullivan (No. 12); Ashley (No. 13); and Bush Industries (No. 17). Sales gains ranged from 20 percent for Klaussner and Bush to 4 percent for Interco. Overall, industry executives are anticipating continued profitable years for a number of reasons:

* According to a report by F.W. Dodge, during the last few years, approximately 9 million people entered the 35 to 54 year age bracket, described in the report as the "prime age for home buying."

* Existing home sales, said Epperson, are what realistically predict furniture sales. Existing home sales rose to 3.22 million units in 19991, up from 3.21 million units in 1990, according to the National Association or Realtors. In the first quarter of 1992 alone, existing home sales increased 8 percent to 3.49 million units, according to association records.

* The average new home today is approximately 2,000 square feet vs. the 1,700 square feet of space built five or more years ago, said Epperson. "You can get roughly 3 1/2 times the furniture in a 2,000-square-foot house than in a 1,000-square-foot home."

Yet despite the recession-ending, cautiously positive outlook on the home front, many Top 25 companies are looking offshore and to neighboring countries for increased marketing opportunities.

Global opportunities open up

"American manufacturers not only have a real challenge, but also an historic opportunity to expand their marketing," said David Leffler, vice president of sales at Century Furniture and president of the marketing division of the American Furniture Manufacturers Assn. "The world has opened up with liberal economic ideas. There's no longer an iron curtain, bringing a huge amount of people in the global market."

Leffler estimated that almost two-thirds of U.S. marketing opportunities are in the international arena. Leffler defined international as overseas countries, vs. offshore countries such as Canada and Mexico. "There are lots of manufacturers overseas -- and people want to buy American furniture because it's American furniture. If they just wanted good furniture, they could probably get it from home." Leffler said AFMA is developing a standing committee to help member companies develop international marketing programs.

Is free trade equal to fair trade?

In retrospect, it seemed like a fair deal -- elimination of furniture tariffs by 1993, giving Canada free access to a U.S. population roughly 10 times its own size. For the United States, it mean a marketing opportunity with a beneficial dollar exchange rate value, plus the benefits of lower shipping costs between countries than could be found between Canadian provinces.

However, it hasn't all been equal.

Since 1989, when the Free Trade Agreement went into effect, residential furniture exports into Canada rose 40 percent to $331 million in 1990, and topped $407 million last year. Conversely, Canadian imports into the United States dropped 2 percent to $358.6 million in 1990, and dropped another 3 1/2 percent to $345.9 million in 1991, according to Bruce Hansen, economist for the USDA Forest Service in Princeton, W. Va.

"Free trade, combined with the recession, is a double-barrel shotgun striking the devastated Canadian residential furniture industry," said George Sinclair, executive vice president of the Ontario Furniture Manufacturers Assn.

Canada's goods and services tax, in effect since early 1991, has also hurt Canadian furniture manufacturers, Sinclair said. "This whole situation has just devastated the retail industry and free trade is a big contributor to it. A lot of big companies that have closed down or moved are not coming back here," he added, citing Bauhaus' location of its operations to Mississippi, as an example. "Before we had free trade, we had a lot of branch plants in Canada. Now they're closed."

Intercountry transportation costs are also less for U.S. manufacturers than for Canadian firms, Sinclair said. "For example, it costs less to ship products from North Carolina to British Columbia than from Ontario to British Columbia."

Supporting the Free Trade Agreement is Manitoba, B.C., Canada-based Palliser Furniture which exports roughly 35 percent of its products into the United States. In addition to its Fargo, North Dakota, facility, the company recently opened a second U.S. plant in Troutman, North Carolina.

Exports to Canada, Mexico and Japan accounted for roughly 5 percent of Ladd Furniture's 1991 sales. "We've been working with Canada seriously for about two years with some good results," said John Ong of Ladd Furniture. Although the company is looking at other markets as well, including Mexico and Japan (see accompanying article on American of Martinsville, a division of Ladd), Ong said, "Canadian business is by far the most successful course. We probably won't open a plant in Canada although we will look at the possibility of a joint venture with one." Brown Jordan, which was purchased by Ladd in 1989, has operated plant in Juarez, Mexico. since the mid-1980s, under the Maquiladora program.

Bassett Furniture also exports residential products to Canada, Mexico and Japan as well as Saudi Arabia. Like many other Top 25 furniture makers, a key marketing strategy for Bassett is to focus on expanding its international presence, said Ron Castle, assistant controller. "Our company is favorable to anything, like free trade, that will make it easier" to expand its global presence, he said.


American of Martinsville President Robert Maricich looked so far west for new marketing opportunities, he would up in the Far East.

As a member of President George Bush's January trade mission to Japan, Maricich represented the American furniture industry during meetings with the Japanese prime minister and key government officials. The key topic was trade and investment opportunities.

Nationwide, exports of residential furniture into Japan have been rising over the last few years. 1991 U.S. residential furniture imports into Japan were $40 million, up 29 percent from 1990 figures, according to the Analysis of Domestic and International Hardwood Product Markets Research Work Unit, USDA Forest Service, Princeton, West Virginia.

"Our company has had an international focus for about four years now," said Maricich. "But we've put more emphasis the last 1 1/2 years to focus particularly in Japan," he added. American of Martinsville markets primarily its hotel lines, a large percentage of which is custom. The company manufactures both seating and case goods items, some of which are ergonomically adjusted to accommodate the Japanese.

In addition to ergonomic considerations, as well as duplicating literature into Japanese, exporters to Japan must make a personal commitment to maintaining a business relationship, he added. Maricich himself flies out at least twice a year to meet with Japanese representatives.

"It's a long term commitment, about three to five years, to develop a relationship. The entire distribution is difficult to understand -- it's maze-like compared to the U.S., as far as getting to customers. The design cycle, the longer lead times are also factors."

American of Martinsville's participation in the January trade mission was a direct result of its success in marketing and promotion in the Japan Corporate Program. The program is an offshoot of the U.S. Department of Commerce Trade Initiative.
COPYRIGHT 1992 Vance Publishing Corp.
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Copyright 1992, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:includes related article
Author:Koenig, Karen Malamud
Publication:Wood & Wood Products
Article Type:Directory
Date:Jun 1, 1992
Previous Article:High Point develops an attitude.
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