Lower demand, excess inventory darken suppliers’ outlook for the start of the year

HIGH POINT — As economic conditions worsen and fears of a recession mount, the extreme demand the furniture industry witnessed over the COVID-19 pandemic seems to be all but a distant memory.

The issue now is the abrupt stop in demand. When demand was high and when lead times were long, retailers ordered lots of furniture. But when that demand suddenly eased and supply improved, retailers found themselves with way too much inventory. This has made the situation hard for suppliers, who struggle to gauge the appetite of retailers.

Suppliers themselves are also high on inventory, with many struggling to turn a profit on items ordered when ocean rates were sky-high.

“The challenge is that we have too much inventory at too high of a price,” said Micah Swick, president of Bernards Furniture. “All of it came with high container rates. Product is now five times cheaper than what it was six months ago. The challenge is getting rid of that inventory at a rate that allows you to stay in the black.”

For mid-priced case good importer American Woodcrafters, which imports from Indonesia, the current issue lies in planning.

“With Chinese New Year coming, there’s going to be a large break,” said Rusty Morris, vice president of sales. “Many of our container-direct customers are hesitant to give us forecasting too far out. We used to get a six-month plan. Now we’re getting no plan.

“While we don’t ship out of China and Vietnam, we do rely on them for parts to some degree,” he continued. “For cutting schedules, we have to plan that. We’re trying to be accommodating as possible. But we’re telling people, parts are an issue. We need a rough estimate of what your needs will be.”

American Woodcrafters’ Sedona bedroom collection is crafted of hardwood solids and mahogany veneers.

Consumer demand is hard to forecast. While it’s certainly down now, it’s difficult to say for certain how much it’s down and how long it will last. Many suppliers are using the time of uncertainty to improve other facets of their business. Others are working on increasing their market share.

“Our strategy for 2023 is all about market share,” said Swick at Bernards. “We’re also in the middle of growing our distribution channels.”

“Our main goal for 2023 is to get all facets of our operations back to (or better than) pre-pandemic functioning,” said Tim Donk, vice president of sales for Legends Furniture. “Business is tough, but we are optimistic about 2023 and are forecasting 10% to 15% growth.”

What does 2023 look like?

Some suppliers are cautiously optimistic, while others think the year will start off in a rough spot and get better halfway through.

“We are cautiously optimistic about the state of the industry,” said Jason Phillips, vice president of the Phillips Collection. “Travel and market attendance seem to be approaching pre-COVID levels, which is extremely encouraging. We temper that optimism with the reality that retailers are in high stock positions and consumers have had their mid-pandemic-home-decorating-frenzy.

“Housing and the furniture industry are in a 20% correction,” said Gat Caperton, president of domestic manufacturer Gat Creek. “Lower price points went into the correction first and higher price points later, but everyone is in now. Most will overcorrect. The industry is lumpy through the first half of 2023 but will obtain a good equilibrium by Q3. I’m very optimistic about the long-term. Of course, I don’t quite know when we will get there.”

High-end importer Hekman predicts a tough start to the year, then improvement.

“Business is okay, but it’s slowing,” said Jim O’Keefe, vice president of sales. “We had great attendance at High Point Market, maybe up a third over last time. But order volume was down significantly. People told us that their foot traffic is down, and warehouses are full.

“We’re forecasting a tougher start to the year, but I think we’ll come out of it either Q2 or Q3,” he continued. “It all depends on the ‘unknowable’ things, like the economy and inflation.”

Reduced orders have prompted many furniture making factories in Vietnam to close for longer than usual for Lunar New Year, which begins Jan. 22. Exact times for the closures vary by factory, but many are scheduled to begin as early as December.

“All six of the factories we source from will close the last week of December,” said Donk at Legends. “They’re not getting many new orders, and the ones they are getting are for post-Lunar New Year. There’s too much inventory, and business is soft.

“We’re not necessarily worried,” he continued. “We introduced two groups at market that we’re not expecting until April anyway. We have enough existing inventory, and we can pull from our warehouse. We’re sitting in a good position with our domestic factory.”

Logistical concerns

Besides lower consumer demand and excess inventory, logistical issues are at play for suppliers.

Domestic freight has replaced ocean freight as the chief logistical issue for many, as fuel prices remain high.

“Inland freight is awful,” said Morris at American Woodcrafters. “Pricing is ridiculous. Fuel and labor costs are up. It’s making it difficult for our strategy of expanding West of the Mississippi.

“The other thing that’s making it interesting is the shakeup of companies buying others, like Brooks Furniture buying Shelba Johnson. We have a lot of customers that use each. I don’t know how that’s going to work out.”

Ocean freight has improved for Hekman, but like American Woodcrafters it struggles inland.

“Trucking companies continue to have more power than we would like,” said O’Keefe. “I’m waiting for the pendulum to swing in our favor. It always seems like a conspiracy of factors: Driver shortage, diesel prices, etc. But I see a reduction in demand for consumer goods, which could lower demand for inland freight. Hopefully that will lead to better pricing, but we’re not seeing that yet.”

Some see the situation improving, albeit slowly.

“We see pricing coming down for inland freight, which is sorely needed after the exorbitant prices we experienced during the pandemic,” said Phillips. “Our big focus remains accountability with the bookings we have planned so we forecast our inventory as accurately as possible.”

Martin Furniture is also seeing fuel costs decline.

“With fuel prices receding, maybe land freight will be reduced,” said Gil Martin, company founder and CEO. “Fortunately, ocean freight has declined in cost dramatically. We wonder where that will balance out.”

Tip-over legislation looms

Another chief concern is the CPSC’s new final rule regarding furniture tip-overs, which passed in October. The rule, which the American Home Furnishings Alliance opposed when it was first announced in 2021, involves complex testing methods and will be challenging for suppliers to meet. It will go into effect in May 2023, and there is concern.

“Being a nearly 100% case goods manufacturer, our primary focus is the new final rule on furniture stability passed by the CPSC in October,” said Luke Simpson, president of Durham Furniture. “All of our efforts are going into testing, design changes as necessary, etc., to ensure our product will be compliant by the eventual effective date.”

“It’s a steep challenge to meet it,” said Ben Copeland, director of sales and marketing at the domestic Copeland Furniture. “We will do whatever we need to do.”

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