Most retailers, manufacturers and industry observers alike are banking on a recovery next year from what was for many a rocky 2001.
Exactly when it will happen is debatable. But just as retailers correctly saw the writing on the wall for a rough 2001, now they are seeing a lot of signs for a reversal. Indeed, some say they already are feeling the rebound.
"We're investing heavily and expanding our business, so we're truly hoping it's going to be a strong year," said Keith Koenig, vice president of Fort Lauderdale, Fla.-based City Furniture.
While City's business has held up well this year, "there is every reason to think the furniture business will get even better because of the fiscal stimulus by the government," Koenig said. Low mortgage and interest rates should continue to be a positive for home buying as well as mortgage refinancing, which Koenig noted is at an all-time high.
"I think the consumer will continue to see that as disposable income that could go into their home," he said. "I think the home is going to be considered more and more a safe haven, which bodes well for the furniture industry."
That's not to suggest the year will be without its challenges or worries. Like other, Koenig qualified his sunny forecast by noting that it is "barring tragedy or catastrophe," something on the minds of most people since Sept. 11.
Unemployment effect
Hershel Alpert of Alperts in Seekonk, Mass., said the one thing that concerns him most about the outlook for next year is the trickle-down effect from rising unemployment.
"That could probably do more to hurt the furniture business than anything else," he said. "Furniture is a highly postponable purchase made with discretionary income.
"Having said that, I believe that there is a significant furniture business out there," he said. "I believe that if we're aggressive in our advertising, in our promotions, in our values, that we can convince the consumer to release that pent-up demand."
The industry has to continue to work hard to make furniture extremely attractive for the consumer to buy, Alpert said. And one way to do that, for example, is through no-interest credit promotions, which he said he much prefers to the "no-payment" stepsister.
Like others, Alpert also pointed to value-packed imports as a way to show the consumer that what "we're selling has huge value."
The same goes for Hank Browne, president of Little Rock, Ark.-based Hank's Discount Fine Furniture and the new Home Place Furniture chain in Florida. Today only four out of 26 bedroom groups on his floors are domestically produced, he said.
"There's not a domestic manufacturer that can come close to matching the value," said Browne, whose stores are designed to promote this kind of value story to today's consumer.
Michael Wilkov, president and chief executive officer of Cantoni, the Dallas-based upscale contemporary home furnishing specialist, contended that maintaining the proper level of inventory will be among the more important keys to success in 2002.
A retailer needs to be liquid enough to take advantage of any opportunities, but "you don't want to be out of stock," either, Wilkov said. There's a fine line between the two, but he said this and other aspects of the business will be very important next year.
Focusing on lead times is also key, he added. Customers are not prepared to wait more than 12 weeks. "If we can't get goods by that time period, we definitely don't want to be working with those suppliers."
On the pricing side, Wilkov noted that in tightening economic times, consumer tend to gravitate to less expensive goods. That means that while there is still a market for the top-of-the-line goods, the bulk of Cantoni's buying is likely to be focused a little down from the top of its price spectrum.
Joe Reddington, chief executive officer of Lancaster, Pa.-based Breuners Home Furnishing Corp., believes most retailers are being cautious about 2002, "planning conservatively and hoping it's stronger than that in the degree of bounce back."
BHFC has experienced strong business through the fall at both its East Coast and West Coast chains, he said. "What we found is where we really give them an outstanding value, they're responding."
Conservative outlook
While a recovery sounds great, one industry analyst noted that strategies pursued this past year to wring the most out of tough times followed by a quick recovery next year actually could set the stage for new challenges.
"A period of recovery puts more retailers and producers in trouble than a period of softness," said Jerry Epperson, managing director of Mann, Armistead & Epperson in Richmond, Va.
If you're a retailer, in weak times you're buying less inventory but collecting money for goods sold in better months, he said. Business is slow, but cash flow is strong.
"When business starts coming back is when you run out of cash and out of resources because you're building up," he said. The steeper the recovery, the more companies are likely to have trouble.
A strong recovery will also force retailers to make some hard decisions, Epperson added. Do they continue to go with the resources that have been providing all the great deals during tough times? Or do they refocus on suppliers with the best styles, service and brand awareness?
Epperson said there is danger in these down-time deals. If a retailer has replaced a $1,000 wholesale item with a $750 item and adding its traditional mark up, that retailer effectively has lost $500 on a sale.
"Your ... costs are all the same," he said. "We're seeing people are using these terrifically priced goods (to drive business) and seeing their cash flow and profitability decline severely.
"If you can't do significantly higher volume, your better off keeping your prices where they were," he added
Emphasis on value
Reddington agreed that this would be true if a retailer was just trading down — but BHFC isn't among them. His stores are taking advantage of imports and other clear values and driving more dollars through the same square footage because the consumer recognizes the better value, too.
At City Furniture, meanwhile, the fantastic values now available actually are leading the customer to step up, not down. "The mid-priced consumer now sees real, better quality goods are available and within their reach," Koenig said.
"A customer who may have bought a $1,000 or $1,500 bedroom can now see an incredible value for $2,000 or $2,500, and they're seeing the logic of stepping up," he said. "Our average ticket continues to escalate."
At Fort Myers, Fla.-based Robb & Stucky, which is among those looking for a rebound next year, next year and every year all eyes will be on the details of business and basic block-and-tackle issues, such as improving closing ratios and emphasizing the importance of house calls, said Fred Berk.
