Buying, selling, inventory patterns changing due to economic challenges
Marc Barnes -- Casual Living, June 1, 2009
For manufacturers of casual furniture, the front end of this retail season came down to less and fewer.
Early buy orders were down sharply this year because of the economic downturn that rippled through the credit markets, slammed consumer confidence and left less for retailers to borrow to replenish inventory, which led to delays or cancellation of container orders from overseas.
Given those factors, industry observers say the ability to deliver quickly, from stock already in place in warehouses in the states, may well mean the difference between profit and loss this season.
Lesson learned? Be ready for change. Veteran furniture industry analyst Jerry Epperson says this year's economy has taught us once again change is the only real constant.
"Imports are continuing to grow, but the model is changing because more importers, including those with domestic manufacturing, are now carrying inventory for the retailers," Epperson said.
A spot check of manufacturers and importers showed an increased emphasis to that kind of business model.
Oliver Ma, president and CEO of Treasure Garden Inc., said his company has doubled its inventory in its California warehouse and designed new quick ship programs to ensure fast delivery.
"We have also tried to be as flexible as possible in working individually with our dealers on their special payment term changes that mostly resulted from banks unexpectedly changing their lending practices," said Margaret Chang, chief operating officer of Treasure Garden.
Similarly, Dave Hill, manager of North American operations for Domus Ventures, is using a cross-dock program so retailers can get what is essentially container pricing for much smaller quantities. "It gives them a lot more flexibility and individuality on their store floors," Hill said. "They can set themselves apart without having to make that major commitment."
Domus Ventures had a great September market, but saw 75% of its commitments evaporate after October's stock market downturn, Hill said. By mid-January, the business came back to life.
"Things aren't great, but all things considered, I think we are holding our own and moving forward," Hill said.
Agio President Bob Gaylord noted specialty retailers attract the higher-end customer, especially as economic conditions improve.
"Our products sell extremely well for the value," Gaylord said. "The Agio name has the largest recognition factor in the country. Fifteen percent of the people in the market to buy patio furniture know Agio; the number two is at nine percent" for name recognition.
Even so, Gaylord said he is concerned about the industry overall. For now, he suggests outdoor furniture retailers might do well to take a page from the indoor furniture industry. Interior designers help decide what kinds of furniture and accessories would be good choices in a room. For outdoor designs, that would translate to project management, in which retailers could partner with contractors to oversee the construction of an entire outdoor room then sell the furniture to go in it.
Dudley Flanders, president of Lloyd/Flanders, said he has seen a recent — and usual — uptick in seasonal orders.
"If you look at the influx of orders curve and the substantial increase in business we experience during the season, that did and has been occurring," Flanders said. "The caveat to that is it is all at a lower level."
Flanders said Lloyd/Flanders is well-positioned, both because it can deliver quickly the color and style a customer wants from a specialty retailer and because a significant number of customers this seasons are opting to replace cushions to freshen up the look of their furniture, rather than purchase a new set.
David Swers, vice president and assistant general manager for the custom fabrics division of Glen Raven, said he has noticed buyers have slowed on stocking inventory, but that demand sometimes dictates quick delivery. That, he said, can put pressure on the supply chain.
"They are just now filling the pipelines to make sure they have product for the season," said Swers. "Has it picked up? Yes. Has it made up for previous years? No, it hasn't. We are definitely seeing a seasonal uptick, and I would be real concerned if we did not."
Alex Te, president of Acacia Home and Garden, said customers have been worn down from hearing bad economic news. His key has been to introduce new casual dining products in "warm, happy colors," which can be delivered to the retailer in four weeks. After its initial introduction in April, the W.I.N.O.s collection has started to gain traction, he said.
"If we can bring some happiness to the industry with a great value, that is one of the simplest ways of getting started all over again — it is like reinventing how you do business," Te said
At Barlow Tyrie, Charles Hessler, executive vice president, said that because his firm specializes in special orders, targeted to higher-end buyers, it is not as affected by downturns in the markets.
"We don't start early buys until the Casual Market in September and our dating isn't quite as lengthy," Hessler said. "We're not the big container or truckload order, we are special orders. It is important to us, but it is not the end of the world if our early buys are off 20 to 30 percent."
Still, Hessler said, his firm has been busy processing orders and shipping them out of the warehouse, to the extent that shipping has run behind some days.
Similarly, Gene Saenger Jr., president of Ficks Reed, said the market conditions affected everyone across the board. Saenger said he was in discussions with a major store group last October when the downturn hit.
"We are doing OK and Ficks Reed is doing OK, but we acknowledge that the retailers have been knocked back," Saenger said. "We need a strong retail base. We have sales, we have the story, we have the product to back up the story and we definitely have the interest of a certain segment of consumers who want the product."
Saenger thinks the key is marketing. He suggested retailers consider going beyond asking consumers if they can help them, by showing and demonstrating products more effectively.
Eric Parsons, president of Gloster Furniture, said the best way to grow, even in this economy, is to keep a mix of products and to have them available. Gloster will introduce new lines and extensions to existing ones, he said. The new lines will be of interest to more aggressive retailers; the extensions are for those who prefer a tried-and-true approach.
Overall, Parsons said his firm is well-positioned to weather the economy, with an ample supply of stock in its warehouse in Virginia. In addition, Gloster brought upholstery in-house three years ago, which means it can ship cushions out in three days.
"We are definitely selling at the higher end of the market," Parsons said. "It is more of a fashion industry and you need to be able to meet fabric needs and design style needs of a changing market — and that changes very quickly."
Laneventure President Gary McCray said speed and agility are what the marketplace is looking for now.
"As business has become more selective, retailers are looking for domestic suppliers that will maintain inventories of frames and fabrics and are capable of delivering quickly," McCray said. "They are telling me that they're seeking a higher share of special order versus stock sales making this essential."
As Laneventure moves into the 2009–2010 season, it plans to build an early buy program geared to floor placements versus warehouse stock, McCray said.
Uwharrie Chair President Rick Price said past recessions taught him that styles usually change toward a more traditional look. This one has gone the other way, with more of a contemporary look with stronger colors.
"The advantage is that we have so many styles we can adapt," Price said. "And since we're not making in large quantities, we can adjust to what the market orders from us right away."
Price said he expects a better future for those who survive the downturn.
"It will probably start improving by the beginning of next year," Price said. "Those who have made it through will see less competition, the demand will be pent up and that will be freed up later on."