Market Outlook  


What Will Tip The Scales ForThe Industry In 2017 - Furniture Executives Weigh In

Reprinted from Furniture Today


The US furniture industry enters 2017 amidst a period of dynamic change. A new administration has entered the White House with new personnel and policies that portend significant changes for the American economy, global trade and the domestic regulatory environment.

At the same time, the makeup of the furniture industry’s consumer audience is undergoing a fundamental realignment and the pace of technological change is accelerating at an unprecedented rate.

What does all this mean for the furniture industry in 2017 and beyond? Furniture Today reached out to executives across the industry to find answers to exactly that question. What we found was an industry ready to make the most of the opportunities presented by a new direction in Washington, but also cognizant of the challenges presented by rapidly evolving technology, changing consumer lifestyles and a resulting shift in purchase habits.

Participating executives expressed an acute awareness of the challenges that confront the industry in the coming year and beyond, not just domestically, but across an increasingly complex global landscape.
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TODD WANEK,

CEO, Ashley Furniture Inds.

“We have a tremendous amount of optimism for 2017. The macroeconomic factors are very strong and the expectation of historically low interest rates, low unemployment, and strong housing should make 2017 an outstanding year. Ashley continues to invest in our people, infrastructure, new products, and our supply chain – which is well positioned to handle significant growth. We have continued to invest in U.S. manufacturing and distribution capacity at a rapid pace.

“As far as the key issues for 2017, it is obvious that traditional furniture brick-and-mortar retailers must continue to evolve. Pure play e-commerce companies are continuing to take market share because they make the process of customer sales easy. Brick-and-mortar furniture retailers must invest in technology while continuing to invest in creating a great in-store shopping experience.

“Regulations are strangling the furniture business, and we are hopeful that president-elect Donald Trump will fulfill his promise to ease regulations on business and also reduce taxes. These changes would have a significant impact on our company and the economy.”
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ERIC EASTER,
PRESIDENT, KITTLE’S, INDIANAPOLIS

“For the primarily or exclusively brick and mortar retailer, it is about enhancing the customer experience from front to back. Fewer customers visiting fewer stores means we must be ‘on’ at all times at every touch point with our customer. Consistency at a high level has never been more important. The price of disappointing a customer has never been higher. Those retailers that lack focus and a reason for being will suffer. Those on their ‘A’ game, who execute to the ‘nines’ will enjoy a great 2017. We plan on 2017, like 2016, to be a great year for Kittle’s.

“With regard to the change in administration, we believe we will enjoy a more business friendly environment. As a result, there will be even more opportunity for growth and success. The challenge is to make sure we get more than our normal share. We look forward to 2017!”
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FAROOQ KATHWARI,
CHAIRMAN AND CEO, ETHAN ALLEN

“The key issues remain somewhat similar to 2016: The economic environment is positive, but consumers remain cautious. It is too early to fully understand the implications of the impact of the new administration.

“On the positive side, many of the senior leaders of the new administration are business- and action-oriented. While creating uncertainty with our relationships in the world has positive aspects, it could also create instability. It is a fine balance to manage.”
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JERRY EPPERSON,
MANAGING PARTNER, MANN, ARMISTEAD & EPPERSON

“From the reaction of the stock market, 2017 should benefit from our new president. I am hearing about lower taxes, corporate and individual, and a greater focus on economic growth. All that should benefit our industry.”
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CHARLIE MALOUF,
CEO, Broad River Furniture, Fort Mill, S.C.

“Probably the big one has to be a focus around technology and the Web and just this embracing of omnichannel and adapting to consumer preferences. We all have to become technology companies, so we have to be bold enough to invest in technology initiatives.

“Also, what are we doing to improve the customer experience throughout the whole continuum of her journey — when she begins browsing, when she comes into the store, when she purchases, her post-sale journey, including her delivery experience, her post-delivery service experience and her remarketing experience? That whole cycle continues to need examination for touch points where we can delight and amaze.

“What does all this mean for brick and mortar retailers? It means continuous reinvestment in technology solutions, such as CRM software, in-store kiosks, digital displays and tablets, as well as investments in our physical stores, such as renovations and other investments to improve the atmosphere and retail environment. “What I’m seeing from Trump looks primarily bullish. It looks as if there will be a lot of investment in terms of infrastructure, a lot of economic growth, bringing some manufacturing back, raising incomes of American workers. All those are positives.

“What we have to guard against is how quickly inflation rises, making sure that it’s not too aggressive. We have to be cognizant of fuel costs and interest rates. If interest rates go up too high, what will that do to our cost of financing? Also, if mortgage rates go up too high, will it slow down housing market growth? You don’t want to see interest rates increase too much too fast but overall, I think we can absorb some modest interest rate increases because the growth that comes from that will outweigh some of the higher costs. I think we’re going to see good, strong stable growth — more than what we’ve had — so I’m cautiously optimistic.”
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STEVE TRONSTEIN,
CEO, Gardner-White Furniture, Auburn Hills, Mich.

“I think the biggest issue is going to be whether we see a whole bunch of duties imposed on imported products from China. While they probably won’t be targeted at furniture, we could be killed as a byproduct. The industry is not the focus of everybody’s attention, but as someone once said, ‘When the elephants dance, the ants get pounded,’ and we could end up with 30% duties overnight just like we did on bedroom. It would be a different format — tariffs, but none of us are going to thrive on 30% duties. I think that’s the biggest issue facing the industry and the domestic industry is not capable of supporting (the demand).

“The economic environment is going to depend almost entirely on what the government does in all sorts of areas. We know we’re going to have higher interest rates — I don’t know how much higher — which means the cost of borrowing will go up. That will also mean it will be harder to finance customers. With higher interest, they buy less. The economy could continue to grow or we could have a real slap in the face. If we do some of the really dangerous stuff on international trade, I see really bad things happening to this industry.”
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STEVE ROTMAN,
President and CEO, Rotmans, Worcester, Mass.

“I think the attitude toward business will be much more positive. The lowering of taxes will definitely stimulate many of us to expand and to invest more capital in our businesses. Because of the increase in business and as the United States becomes more positive than, I think, the rest of the world, I see a lot of manufacturers in foreign countries coming to the United States and producing here.

“And because of the way Trump is approaching it, they won’t want to lose the business they currently have. At the same time, he could attach tariffs to imports in order to get manufacturers to produce in the United States. “I remember one time in Malaysia the government turned around and said, ‘We’re not going to allow exports of our wood. If a company wants to use our wood, let them build here.’ And many of the Scandinavian manufacturers decided to build in Malaysia. I think Trump is doing that same thing except with labor. He’s saying we have a marketplace that demands product, and if you want to sell us, we want you to make it here. And if you don’t make it here, we’re going to make it expensive for you to ship into the United States.

“It’s a protectionist mode. I think we’re going to see a number of things happen. We’ll see a tremendous demand on American labor because of the increase in growth, so I do see payrolls and salaries going up. The cost of doing business will be higher because it will be more competitive. I also see prices going up because of demand and limited supply. I see a lot of growth in the economy, but growth with a cost. Companies will have to carry more inventories. There will be a bigger demand for capital and I think it will be more expensive capital.
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BRUCE BERMAN,
Chairman, The RoomPlace, Lombard, Ill.

“The very low interest rate environment we’ve been in has created a situation where the cost of funds for the banks that lend to our customers is quite a bit cheaper than it has been historically. Because we’re in such a low interest rate environment, lenders are able to approve a higher percentage of customers and approve them for higher balances. There’s a very strong possibility interest rates will go up and, consequently, it’s possible that approval rates and the amounts being approved will go down. That’s something that would be driven by the political change.

“I think there’s an endless list (of issues) but drilling in on the availability of funds for customers to be able to finance their purchases — that’s a big thing. Three out of four customer use one of our financing plans. You can always find something to mitigate a bad situation, but if interest rates rise quickly, it could create a challenging environment.”
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MOHAMAD AMINI,
President, Lacquercraft

“The industry’s key issue will be trade policies from the new administration. I don’t think either side can afford a trade war when it comes to China or Mexico and Vietnam, but all the tough talk may create temporary challenges. If we do, however, have some kind of trade dispute, it could be a tough year not only for our industry but also the whole country.

“Deregulation promises won’t amount to much during 2017 for the furniture industry, as most of what impacts us happens at state level, but may impact on a few fronts in 2018.

“I believe business will get better with tax cuts and lots of spending promises. This will be good for our industry but not necessarily for the overall U.S. budget if it spends more than it takes in. Interest rates will go up soon, which will impact housing, but I think a positive attitude together with consumer confidence will offset that impact as it’s now doing to the stock market.

“Having said all the above, anything is possible. The election is a perfect example, and it’s hard to make any prediction.”
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PHIL HANEY,
CEO, Lexington Home Brands

“A slight bump in the prime rate could actually re-ignite consumer interest in housing and cause them to “buy now” before rates rise further. Currently, the continual low rates may have caused the markets to remain unmotivated.

“Labor and raw materials in Asian markets are rising at a rapid rate currently. We will see this in rising wholesale pricing in the U.S. as manufacturers cannot absorb these. While causing some initial heartburn, it will fuel growth in revenue for all.

“I think post-election consumer confidence could be the big news. If the current stock market rally, with the Dow headed to 20,000 is an indication of things to come, we could see GDP return to a more typical post-recession growth of 5-8%. Just imagine what that would do for the home furnishings business!

“We are very excited about business in 2017; we have a tremendous amount of new product planned, for Las Vegas and High Point Markets, all through the year and expect retailers feeling the excitement of increased store traffic, wanting to bring exciting new product to their floors to make sure that they connect with the newly vibrant consumer. Mark us down for a good year in 2017!”
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TERRI LEE ROGERS,
President, OW Lee

“I think it will be very interesting to see what happens in our global economy over the next year. While the stock market is rallying (right now), it is difficult to tell whether the American consumer will embrace the changes that will likely occur under the new administration, which most likely will result in price increases. Is the American consumer willing to pay the price of bringing back or keeping manufacturing jobs in the US?

“OW Lee is positioned to manufacture in the US. Our margins are built upon this model and so we feel that we will not be as impacted as others who are importing direct. Any changes in our trade policies would probably benefit O.W. Lee, because it might level the playing field, but I’m not sure it will benefit the overall industry.”
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ALEX PEYKAR,
President, Nourison

“I believe the issues of our industry are no different than any other home furnishing as well as others. Our basic goal is to maintain and grow our business while doing our best to be a better partner for our retailers.

“As years go by, it is clear that business does not get easier which in many ways it’s good to keep us all on our toes. The ever-changing direction of specifiers and designers in colors and designs remains a very important part of our everyday tasks while doing our best to create and manufacture products that give the best possible perceived value to the end consumer.

“The importance of e-commerce continues to be a severe challenge. We noticed that many e-commerce sites are bringing customers that may not have been looking for rugs or furniture. I do admit that they are making an impact, affecting the sales of the traditional retailers. The retailers that are aware of the changes in the marketplace are not losing share by having their own websites and e-commerce, doing their best to maintain and in some cases gaining market share with their involvement in the new way of doing business.

“I am hoping that the new optimism in the marketplace given the new political changes will continue and not disappoint us.”
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ANDY COUNTS,
Executive director, American Home Furnishings Alliance

“According to our team in Washington, there will be some momentum within the Trump administration to ‘undo’ some of the regulatory decisions of the Obama administration. But it is likely that the focus will be on much higher-level issues like climate change and immigration, rather than on individual rulemakings that directly impact our industry, like the EPA’s formaldehyde emissions rule for composite wood products.

“In the area of product safety, it is likely there eventually will be a change in leadership of the (Consumer Products Safety Commission). Traditionally, the chairman steps aside under a new president, and, with an expiring term coming up on the Commission, Trump would likely make a selection that would give Republicans the majority. However, again, the CPSC is not a main focus of the transition. So, for the short term, we can expect the current chairman, Elliot Kaye, to continue pushing for significant changes to the tipover standard.”