Outdoor Furniture Players Bullish on 2011
By Jessica Goldbogen Harlan
It's been a trying couple of years for the casual furniture category, but industry players are hopeful that 2011 will bring good news for business as the economy slowly improves and solutions to challenges in shipping and labor are found.
"From a big-picture perspective, individuals in our industry are very optimistic about 2011," said Joe Logan, executive director of the International Casual Furnishings Association. "Buyers and manufacturers are very upbeat about our prospects." He said that during the economic downturn, the outdoor category remained among the strongest in the home furnishings industry, so now that the economy is improving, the industry is also the first to enjoy evidence of recovery.
One of the biggest challenges that the industry has faced in recent years was the rising cost in shipping containers of goods from China and the other Asian countries in which furniture is manufactured. Insiders said that this is still an issue, with costs double in many cases what they were a year ago, but most manufacturers are determining ways to meet this challenge head-on.
"Shipping costs have gone up in the past couple of years mainly due to steamship lines taking ships out of service," said Bob Gaylord, president of Agio International. "Less space means higher costs. More ships have come back on line and some costs have fallen back a bit, but the companies are being cautious as to how much capacity they will add until they are sure the U.S. economy is back on track."
At BJI Inc. the company has been working on ways to fit more products into one container to ship more efficiently. The company has recently released a patented construction method that makes shipped furniture more compact while not requiring the consumer to do a lot of assembly.
Similarly, Pride Family Brands has added more collections to its Summer Winds brand that have more ready-to-assemble features, which allows for a larger amount of products to fit onto a container.
And Sokul Outdoor Living was founded less than two years ago, so the company is accustomed to the current shipping rates, said Jason Toth, owner and creative director. "We research the trends in gas pricing to make the best judgment possible; sometimes it is as simple as avoiding shipping in the summer months when shipping companies increase their prices."
Meanwhile, Whitecraft manufactures its goods from its own factory in the Philippines, so it hasn't been as affected by rising overseas transportation costs. But the company does see rising transportation costs to move goods to retailers across the U.S.
"We've worked out a program with the freight carriers we used the most, where they'll give us a flat rate to certain areas," said Bill Herren, director of sales and marketing for Whitecraft. "With our dealers, we tell them we can ship an order to a certain area for X percent based on the total of the order, and the higher total of the order, the less they'll be paying in freight."
Labor is another factor that is dogging industry players.
"Shortages are widespread across the export manufacturing regions [of China] and the central government is doing very little to promote exports, encouraging labor to come from the west to fill this gap," Gaylord said. "They want investment to center around building the domestic market and infrastructure. No one sees this changing, so market forces will have to determine the outcome of labor availability."
The only resolution that Gaylord sees is for manufacturers to be proactive and raise labor rates so that workers from underdeveloped areas of China will be motivated to travel to factories to fill the needs.
BJI is one of the largest importers of casual furniture out of China, and rising labor costs are "absolutely affecting us," said Christopher A. Carmicle, president, national accounts and direct imports division of BJI Inc. He said the impact is related to the cost of maintaining a work force, such as paying for business insurance and basic human rights. "Responsibility is improving, and the costs of protecting the laborers are rising much quicker than the cost of the labor rates to the employees," he said.
But even with the challenges of increased costs of labor and transportation, the bright light is with respect to the retail landscape, which is becoming populated with an increasing number of retailers entering or expanding their presence in the casual furniture industry.
Logan of the ICFA has noticed some significant changes in the types of retailers who are entering the casual furniture category.
"You're seeing smaller stores that may have never gotten into the category before, like gift stores, selling some casual furniture accessories," he said. "And a major trend is that you're seeing more mainline furniture stores that in the past have focused on indoor residential, but are now at least looking at the possibility of moving into the outdoor category. Some have made the move already."
Gaylord of Agio International concurs. "The big story is the indoor furniture retailers entering the outdoor casual market," he said. "This is a natural, and many indoor retailers are enjoying healthy increases in sales with outdoor furniture, while their traditional indoor business continues to suffer. More important is the fact that outdoor casual furniture gives the indoor retailer the chance to increase their sales and door counts in a way that was not possible in the past."
Meanwhile, Carmicle of BJI Inc., sees growth in both catalog and online retailers.
"The catalogs have been doing a fabulous job of marketing themselves, putting the dream into everybody's mailbox," he said. "And in an interesting new development, a lot of the existing retailers are really investing in their online operations. Dot-com is the number one highest growth, and it's not new players, but existing retailers investing in a dot-com extension of their brand."
Toth of Sokul Outdoor Living has observed that retailers seem to be increasing the diversity of their portfolios in innovative ways. "A lot of pool stores are now stocking casual outdoor furnishings when they haven't in the past," he said. "The most creative dealer we've seen recently is selling recreational sports gear in the winter months, and then switching over to outdoor furniture in the summer. We found this to be very practical when done tastefully and professionally."
While the interest retailers are showing in the category is encouraging, some suppliers are concerned that stores won't be prepared for the stronger sales that 2011 seems to promise.
Said Gaylord, "Retailers are still taking a conservative approach to initial orders and their inventories are lean," he said. "Retailers who do wait to reorder product will have trouble getting their orders fulfilled in time."
Whitecraft's Herren said that he's feeling optimistic about 2011 mainly because of feedback from his company's biggest dealers, and the size of the orders they've placed for spring. "But we're being realistic about it," he said. "If it doesn't happen, at least we know that things can't get worse--or so we hope."