Dollar's plunge causes challenge for Brazil
By Thomas Russell -- Furniture Today, March 10, 2008
High Point — From a furniture exporting and sourcing standpoint, Brazil has had its share of challenges.
Its shipments to the United States fell 10% in 2007 to $321 million, while overall furniture shipments from other parts of the world to this market rose 2%. Brazil's wood shipments dropped 21% last year, to $156.2 million.
For industry officials, the situation can be attributed to one major factor — the value of the Brazilian real against the weakening U.S. dollar.
On Feb. 27 of this year, the U.S. dollar purchased 1.69 real, compared to 2.63 on the same date in 2005. That represents a 35% drop in the past three years.
"Basically, it's the currency — nothing else is holding Brazil back," said Eduardo Herscovitz, a native of Brazil and an expert in Brazil furniture exports and production.
Herscovitz added that the Brazil furniture industry is growing and that factories are investing money in their facilities. He attributed that to a strong Brazilian economy.
Among those U.S. sources that remain loyal to Brazil is Stewart Paul, president of case goods importer Primex. He has been sourcing out of Brazil for the past 35 years and today gets more than 70% of his product line from there.
Paul admits that the currency situation has been a big challenge. "The currency is the major issue — the change in that has been very dramatic in the last couple of years, and the dollar has weakened significantly," he said.
While such changes make product coming out of Brazil more expensive, Paul said, his Brazilian partners have added value by using more environmentally friendly materials. These include plantation-grown woods such as pine, or Forest Stewardship Council-certified woods such as eucalyptus, as well as woods that are recycled from fallen logs. He said 80% of Primex's product mix qualifies as green.
"We have been pushing for a more green approach," he added, noting that Brazil-made bedrooms in his line retail from $1,199 to $5,000. "Brazil has reacted very favorably to that, and that is why they have gotten a higher percentage of our business."
Paul said the company also uses medium-density fiberboard that meets European standards for formaldehyde emissions.
Paul plans to keep an eye on the currency situation, but doesn't expect to reduce the volume of product he gets from Brazil.
Despite the currency challenges, home entertainment specialist Furnitech also plans to keep sourcing from Brazil. Today, the company gets 100% of its mix from Brazil.
CEO Eric Shupack likes Brazil because of its vast array of raw materials ranging from woods such as Brazilian cherry to iron ore, glass and fabrics.
"You name it, they have it," he said, adding that he also likes the Brazilian people and their ability to communicate with and accommodate their customers.
Shupack said the currency situation has contributed to a 12% to 15% increase in his wholesale prices over the past year or so. Today, Furnitech's entertainment consoles retail from $899 to about $1,200.
Shupack said that his own profits also have taken a hit and that his factories do their part to lessen the impact. That includes anything from buying materials at more competitive rates to creating efficiencies in the production process.
"They have the buying power right now — that is one thing the strong dollar has given them," he said, noting that the plant he works with also has made investments in its equipment and finishing processes that add value to the product.
The company also uses recycled wood materials in packaging, which helps keep costs down.
Roberta Schilling, president of case goods importer Roberta Schilling Collection, also remains committed to Brazil. So does Luis Begazo, president of case goods importer Colonial Brazil.
Both executives source 100% of their upscale product mixes from Brazil. The country, they say, has a level of craftsmanship that can't be duplicated in China.
"It's heirloom, museum-quality," Begazo said of his line of Brazilian and Portuguese antique reproductions.
The currency situation, he added, has been a challenge, and one that he plans to closely monitor.
"Until the currency situation changes, you have to be more watchful," he said. "You have to be more conscious of your costs."
In recent years, Schilling estimated that the currency situation has reduced profits 25% to 30% for her company, which specializes in hand-painted case goods, including high-end beds and dining tables that retail around $7,300.
"Not only is the dollar weak, but so is the (U.S.) economy as a whole," said Schilling. "I cannot even think of raising my price points. I just take the hit and hope it will end soon."
But she also declines to seek other sources outside Brazil at this point. That, she said, could impact quality, and that's not a chance she is willing to take.
Finally, she also feels a sense of loyalty to her native Brazil that she would not want to compromise by shifting sourcing to another country.
"What I love the most is the ability to give back to my people," she said, noting that the factory jobs are helping to raise peoples' living standards and the economy in general.
Jim Ziosis, president of Linon Home Décor Products, sources a mix of ready-to-assemble and fully assembled bedroom, home office and occasional from factories in the southern states of Santa Catarina and Rio Grande Do Sul.
He agreed the currency situation has been difficult of late.
"This has affected everybody's volume, margins and profitability, and a lot of us have had to walk away from certain businesses," he said. "Our volume is down out of Brazil because essentially, we had factories that were no longer able to continue producing within a reasonable increase of the market prices. A lot of price-sensitive business has gone by the wayside."
Ziosis declined to say how much product Linon sources from Brazil but he said that Brazil remains an important source country for his company, particularly for pine products. He also said a number of factories there are very automated and technologically advanced.
Ziosis believes that the dollar soon will begin to depreciate more against currencies that haven't experienced much change yet versus the ones that have. For that reason, he plans to keep Brazil in his sourcing portfolio.
"The shoe will be on the other foot soon," said Ziosis, who also does business with China, Vietnam and other parts of Southeast Asia. "Not having some balance in your suppliers and supplier countries is not healthy."
