Furniture Industry Will Not Rebound Until 2010

The furniture industry is experiencing a tough year because the housing market is slowing down and the credit crunch is hurting furniture consumers. The industry lost a lot of retailers and it will probably lose more. Furniture and home furnishings continued its decline, dropping 13.2% versus last October. Industry analysts said that this is the worst period for the industry since World War II.  

Jerry Epperson, a furniture industry analyst with Richmond, Va.-based investment banker Mann, Armistead and Epperson, and a Furniture/Today columnist, has ratcheted back his forecast for the furniture and bedding business, calling for a 7.2% decline in shipments this year and a mild rebound of 1.7% in 2009.

According to Furniture Today column, Epperson is projecting shipments of $37.3 billion this year — a 7.2% decline from 2007. And the $40.17 billion recorded in 2007 was a drop of 2.1% from 2006. Epperson doesn't see a significant rebound until 2010, when he's forecasting shipments of $40.7 billion. For 2011, the projection is $42.64 billion. The forecast is based on an economic model developed by University of Michigan economist Saul Hymans.

The heart of the U.S. furniture industry, North Carolina, has lost more than 22,500 jobs in furniture and related industries since 2000, according to the state’s Employment Security Commission. The number of wooden furniture jobs dropped by 62 percent between 2002 and 2007; the number of upholstery jobs declined 16 percent.

BACKGROUND AND DEVELOPMENT
According to a report by research company Gale, in the late 1990s the economy was still going strong, unemployment was low, and the stock market and consumer confidence levels were high. Housing starts were still strong, and low interest rates spurred home refinancing, resulting in more money to spend on household furniture.

The "Wood Household Furniture, Upholstered" Encyclopedia of American Industries report indicated that people in the United States had more disposable income than ever, resulting in strong furniture sales. However, by the early 2000s growth rates for the furniture industry began to lose ground. Nevertheless, the upholstered furniture sector suffered fewer company closures and employee layoffs than the furniture industry as a whole, which experienced several company closings and employee layoffs. In 2004 the industry stabilized and began to grow at a more predictable pace.

The U.S. Census Bureau reported that the total value of upholstered household furniture reached $10.5 billion in 2005, a modest increase from $10.1 billion the previous year. The number of establishments engaged in that industry reached 1,593 in 2005, employing more than 82,500 workers. With 289 manufacturers, California ranked first among the states, followed by North Carolina's 259 and Mississippi's 109.

INDUSTRY LEADERS
La-Z-Boy Inc. is the largest producer of upholstered furniture in the United States, and its recliners are the world's leaders. Based in Michigan, its brands include La-Z-Boy, Bauhaus USA, Hammary, and Kincaid. The company also manufactures chairs, sofas, and tables, all of which contributed to its 2007 revenue of $1.6 billion. As of April 26, 2008, the company had 70 company-owned La-Z-Boy Furniture Galleries stores.

Furniture Brands International ranks as one of the leading manufacturers of residential furniture in the United States. Revenue for 2006 topped $2.4 billion, portions of which were derived from its non-upholstered lines. Based in St. Louis, Missouri, this company produced such brands as Broyhill, Lane, and Thomasville. As of December 31, 2007, it operated 28 stores.

With over 50 years of innovation and experience in the furniture industry, The Ashley Companies (Ashley Furniture Industries, Inc.) makes upholstered, leather, and hardwood furniture, and distributes them through some 275 Ashley Furniture HomeStores throughout the United States, Canada, and Japan.

HARDWOOD PLYWOOD AND FLOORING MARKETS
In the U.S., domestic hardwood plywood and flooring manufacturers face increasingly unfair competition from abroad in their home market. According to a report released by the U.S. International Trade Commission, imports of wood flooring and hardwood flooring increased from $1.2 billion in 2002 to $2.7 billion in 2006 before dropping to $2.4 billion in 2007 due to the housing downturn. In comparison, U.S.
consumption of these products grew from $3.5 billion in 2002 to $5.6 billion in 2006 before falling to $5.2 billion in 2007. In other words, the market share of imported wood flooring and hardwood plywood increased from 34% to 46% over the five-year span.

Imports of Chinese wood flooring and hardwood plywood increased at an annual rate of 37% between 2002 and 2007 and accounted for most of the growth of U.S. imports. (Source: Rich Christianson, Wood & Wood Products, 1 October 2008)


INDUSTRY NEWS
Top 100 Companies’ Revenue Slipped
Sofa-sleeper specialist Jennifer Convertibles continued to struggle in its fiscal fourth quarter, reporting a net loss of $867,000, compared to a $1.7 million gain for the same period a year ago. Revenue for the Top 100 company slipped 16.3% to $30.8 million for the period ending Aug. 30, while same-store sales decreased 19.5%. (Source: Furniture Today)

Englander Adds Malaysian Licensee
Top 15 bedding producer Englander is continuing its international expansion with the addition of a licensee for Malaysia. Mattressworld Inds. of Selangor, Malaysia, has won the right to produce Englander-brand bedding in Malaysia, Singapore and Thailand. Mattressworld, in business for more than 30 years, produces natural latex bedding as well as polyurethane foam and spring models. The company exports its mattress lines to Japan, Australia, Europe and Canada. (Source: Furniture Today)

The Heart of the U.S. Furniture Industry: The High Point Market
The High Point Market is the largest furnishings industry trade show in the world, bringing more than 85,000 people to High Point every six months. Serious retail home furnishings buyers can be found in High Point twice a year.

Current Demographics: 188 Buildings, 12 Million Square Feet of Show Space, 85,000 Attendees Each Market, More Than 2000 Exhibitors, 110 Countries Represented, Tens of Thousands of New Product Introductions. Approximately 10% of Attendees Are International. Upcoming Spring and Fall High Point Market Dates:  April 25-30, 2009 / October 17-22, 2009.
Source: FDM Magazine / February 2008 issue

TOP U.S. FURNITURE COMPANIES
Company                                                    HQ                               Revenue 2007         Web
Ashley Furniture Industries          Arcadia, WI                           $3.21 billion              ashleyfurniture.com
Steelcase Inc.                                 Grand Rapids, MI                $3.1 billion                steelcase.com
Masco Corp.                                    Taylor, MI                               $2.9 billion                masco.com
Jeld-Wen Inc.                                  Klamath Falls, OR               $2.2 billion                jeld-wen.com
Furniture Brands Int.                      St. Louis, MO                        $2.17 billion             furniturebrands.com
Andersen Corp.                              Bayport, MN                           $2.1 billion               andersenwindows.com
HNI Corp.                                        Muscatine, IA                         $2.08 billion             honi.com
MasterBrand Cabinets Inc.          Jasper, IN                              $2 billion                   masterbrandcabinets.com
Herman Miller Inc.                         Zeeland, MI                            $1.92 billion             hermanmiller.com
La-Z-Boy Incorporated                  Monroe, MI                             $1.62 billion             lazboy.com
Haworth Inc.                                   Holland, MI                             $1.48 billion             haworth.com
Pella Corp.                                     Pella, IA                                   $1.2 billion               pella.com
Knoll Inc.                                         New York, NY                         $1.05 billion             knoll.com
Ethan Allen Interiors Inc.              Danbury, CT                           $1.005 billion          ethanallen.com
Global Group                                  Marlton, NJ                             $930 million            globaltotaloffice.com
American Woodmark Corp.         Winchester, VA                      $760.9 million         americanwoodmark.com
Klaussner Home Furnishings    Asheboro, NC                        $715 million            klaussner.com
Leggett & Platt Inc.                        Carthage, MO                         $690 million             leggett.com
Teknion Corp.                                 Toronto, ON                           $631 million             teknion.com
Kimball International Inc.              Jasper, IN                              $615 million             kimball.com
Source: fdmonline.com

U.S INTERNATIONAL TRADE STATISTICS FOR FURNITURE AND FIXTURES (In Thousands of Dollars)
 
                                                                                         September 2008            Cumulative YTD thru Sep. 2008
                                                                                             Export    Import            Export   Import                                      
NAICS     Description                                       
337110 Wood Kitchen Cabinets and Countertops    15,419         56,639          118,316            512,074  
337121 Upholstered Household Furniture                  45,319      221,081          382,883        1,937,351    
337124 Metal Household Furniture                                 8,225      177,927             87,273        2,274,399
337127 Institutional Furniture                                      173,816   1,057,268       1,439,299        9,966,519   
337129 Wood Sewing Machine Cabinets                         734              168               4,797                3,312
337211 Wood Office Furniture                                       14,011         70,983          114,510           686,513      
337214 Office Furniture (except Wood)                        24,374         38,217          190,309           355,262      
337215 Showcases, Partitions, Shelvings, and Lo 100,417      399,804           902,236        3,501,736    
337910 Mattresses                                                          15,696         22,138           102,330           170,243      
337920 Blinds and Shades                                              5,647         86,335             45,179           743,940    
Total                                                                                  403,658    2,130,551       3,387,131     20,151,351   
Source: U.S. Census Bureau


COMPETITOR COMPARISON IN HOME FURNISHINGS & FIXTURES INDUSTRY –
As of November 30, 2008
                                                La-Z-Boy     Ethan Allen     FBI              Natuzzi SpA     Industry
Market Cap:                          169.33M      396.47M          159.07M    109.71M           71.79M
Employ¬ees:                          10,057           5,800             11,900          8,219              2.00K
Qtrly Rev Growth (yoy):          -9.20%       -17.20%          -17.60%         0.70%            0.00%
Revenue (ttm):                         1.39B      937.16M               1.84B           N/A                 668.12M
Gross Margin (ttm):               28.04%    53.84%               20.04%       26.05%            39.54%
EBITDA (ttm):                          14.74M    110.67M            -74.46M           N/A                 14.69M
Oper Margins (ttm):                -0.69%        9.14%              -5.37%          N/A                    2.24%
Net Income (ttm):                 -57.63M       47.99M          -103.78M          N/A                    N/A
EPS (ttm):                                -1.112        1.651                  -1.494          N/A                    N/A    
P/E (ttm):                                       N/A        8.36                         N/A          N/A                     7.57
PEG (5 yr expected):                   N/A        1.94                         N/A          N/A                     0.92
P/S (ttm):                                      0.13        0.42                       0.08          N/A                     0.24

ttm: Trailing Twelve Months
yoy: year over year
Source: yahoo finance