After adjusting production to match soft industry conditions in 2001, case goods suppliers have set up their manufacturing and sourcing to make the most of a hoped-for upturn in 2002.
A tighter approach to SKU counts should make it easier for suppliers to gear up when sales bounce back, at which point good price values should make for happily surprised consumers when more resume shopping.
With sharp import pricing a given, domestic manufacturers as well already offer more value in the wake of the past year's plant closings, which consolidated production in more efficient factories.
That in turn will improve lead times domestically. For importers' part, some are building tighter relations with their source plants, including personnel on the ground to monitor quality control and production processes. Others are backing up container shipments with upgraded warehousing stateside for faster replenishment for large customers or doing business with smaller accounts.
The shift toward all import programs, however, could have a down side, at least in the short term, said Don Mecke, senior vice president of sales and marketing at Standard Furniture. While he believes importers are cognizant of possible service issues, he said companies new to Asia face control issues they never did with domestic product.
"Our industry is maturing with regard to the flow of information, and service levels definitely will improve on domestic furniture," Mecke said. "But as all these U.S. case goods companies wander off into the import business, they're going into a fairly steep learning curve. (That will lead to) out-of-stocks and overstocks."
Even at Standard, which has a long history of importing in addition to domestic manufacturing, surprises pop up.
"We had a dining room that was cooking along at 650 sets a month, but in October it sold 1,500 sets," Mecke said. "Well, guess what? It's out of stock and will be for a while. If that had been cut in our plant the turnaround would be a lot faster."
Standard now has direct computer links between headquarters and its office in Asia, where it has 52 people, and added an inventory control and flow department in its Alabama home office.
On the pricing side, 2002 will continue to see strong values, but don't look for case goods to fall much further.
"I see very, very aggressive pricing in the form of various promotions, and the productivity gains that have been made have gone back into the marketplace already," said Bob Maricich, president and chief executive officer at Century. "If pricing goes much lower, you have to question whether it becomes a suicidal strategy."
Manufacturers believe they'll have a lot of catching up to do in the second half of 2002 if they're to meet the AFMA forecast of 7.5% real growth in case goods shipments for the coming year.
"I think there's going to be a significant opportunity in the fall selling season," Maricich said. "I think it's going to be tough the first and second quarters for sure. The fact that (recovery) could start later in the year will make it tough to get back to that goal."
Meeting the goal
The AFMA forecast could be realistic, though, said Wyatt Bassett, executive vice president at Vaughan-Bassett, which expects a better year in 2002.
"The question is how much shipments went down this year," he said. "If you compare to two years ago, I don't know if that (7.5% forecast) is that unreasonable."
Looking at the numbers, AFMA's forecast of 2002 case goods shipments of $11.2 billion is well below not only 2000's figure of $12.2 billion, but 1999's $11.9 billion.
"I think the second and third quarter is about right for when we think it will come back, but we'll be ready in the first quarter," Bassett said.
Mecke anticipates that the economy will remain fairly flat next year but said pricing trends in the industry, with suppliers paying more attention to their starting and middle price points, is a good fit for the situation. A contraction of domestic promotional players is creating a need.
"Maybe a tightened economy and weakened competition in the low end is causing more people to promote, and with less to choose from it's helped our domestic business," he said.
The pump is primed, with housing trends and other forecasting tools for the industry trending up, especially if the new housing dip in October isn't sustained.
"Inventories are low and should there be an uptick, people who are in a position to ship quickly will do well," Maricich said. "But on the import side, between putting the breaks on and stepping on the gas there's a much larger lag time."
Maricich did predict that the industry could lose some players next year, but that those remaining will be stronger.
"Like the economy, the furniture industry is going to go through a shakeout," he said. "The industry has had overcapacity for years, and with the additional capacity from China there has to be a rationalization there. These times are the best opportunities for increasing market share. You have to go out and create value, and be aggressive in grabbing the business."
