While it may seem like a distant memory now, we all remember when the US Government announced a two-week closure of all &#;non-essential&#; businesses to try and halt the spread of a global pandemic in March of . Organizations nationwide were in shock, and many home furnishings retailers were restricted from opening while mixed-product retailers that sold appliances were deemed essential. A bit of a crisis was setting in for an industry that relies heavily on in-person sales and relationships. How would the furniture industry stay afloat?
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Initially, this shutdown saw some factories raise prices while others lowered prices to stay in business, and retailers reached a standstill while the long-term effects were still yet to be understood. From virtual learning and working remotely to canceled vacations and get-togethers, everyone was now spending more time at home. However, there was light at the end of the tunnel.
As the weeks passed and the threat lessened, retail stores reopened, and sales in the home furnishings sector skyrocketed! Consumers realized that they would be spending significantly more time at home, so they wanted to create more functional living and working spaces. This meant purchasing furniture for home offices or possibly upgrading existing pieces in living rooms, dining rooms, and bedrooms.
What resulted was a massive need for products and a supply chain that went from average (before March ) to not functioning (March &#; April ) to unprecedented demand (May &#; March ). Factories resumed work amidst newly distanced production lines and attempted to manufacture in unknown conditions to meet this surge in demand.
Graphic: Furniture industry EDI Transactions through Covid-19 supply chain woes
The period of time between May and November displays the challenge of backlogs caused by the pandemic, showing a drastic increase in Purchase Order (PO) Acknowledgments. Many retailers saw their orders being pushed back for weeks or even months at a time. The stress on the furniture industry was felt throughout the entire supply chain, with retailers taking on the brunt of these delays.
The furniture industry is known for having multiple PO Acknowledgments per PO, with an average PO receiving four different acknowledgments. However, this increased to around twenty acknowledgments per PO during this time, causing unprecedented delays and confusion. Because of the &#;big and bulky&#; nature of furniture products, shipping times can change frequently throughout the life of the PO to Fulfillment.
Along with these delays, the scarcity of raw materials resulted in a lack of finished goods to meet the new demand expectations. Home goods manufacturers were scrambling to procure materials and recognized a need for enhanced visibility throughout their supply chain processes.
Furniture retailers are looking for ways to improve their supply chain operations and adapt to new market trends. To succeed in today&#;s competitive market, retailers and manufacturers need unified commerce solutions that increase visibility, accelerate delivery times, and drive efficiency.
Additionally, data holds immense significance not only on the supply side and B2B operations but also as it relates to online selling, where omnichannel processes are gaining importance. Retailers now face the challenge of managing processes in an increasingly virtual environment.
Leading furniture retailers are investing in technology that provides them with clean, rapid, and precise data. They understand the changing consumer buying patterns, and rather than being swept away, they aim to ride the wave of transformation. As consumer behaviors continue to shift, adapting to these changes is the only way forward.The good news is that TrueCommerce Home offers technology solutions that can help retailers regain control of their supply chain and scale their businesses. From EDI, which allows the seamless exchange of important documents and transaction data, to drop shipping, allowing retailers to expand their product offerings without the added cost of warehouse, TrueCommerce Home provides the integration and automation necessary to meet the demands of the new supply chain reality. For more information, contact us to book a free demo and see how you can optimize your home furnishings supply chain today.
About the Author
Seth Weisblatt has over 20 years of experience in the home furnishings industry. He is currently the Director of TrueCommerce Home at TrueCommerce, where he oversees the home vertical within TrueCommerce platforms and provides digital integration solutions to key suppliers. With a passion for the furniture industry, he owned and operated a successful retail store in Fort Worth, Texas, transforming and modernizing the &#;mom-and-pop&#; retailer into a regional powerhouse. Seth also led the home furnishing division for a national buying group, consulting with hundreds of furniture brands and retailers. Additionally, he served as the VP of Digital Marketing for the world&#;s largest furniture manufacturer, Ashley Furniture.
Seth resides in Plano, Texas, with his supportive wife, two high-energy dogs, and four incredible children. When he&#;s not telling dad jokes or driving the oversized dad-bus (SUV), Seth is likely in the kitchen putting together an over-the-top meal or on the road, enjoying the chance to create new memories and chasing sunsets.
In , I bought on Amazon a zesty asymmetrical mirror from a brand called &#;BIKARSOUL.&#; I paid $141.53 on Feb. 27 of that year. As I gleefully bought mirrors, nightstands and more for my new apartment in the months to follow, I was helping to contribute to a supply chain issue that&#;s still hanging over the heads of furniture makers.
Moving a container from East Asia to the U.S. on the spot market typically costs around $1,000 to $2,000. That&#;s economical for the furniture industry, which, over the past few decades, has become increasingly reliant on factories in Asia to make everything from mattresses to dining tables.
Something strange emerged toward the end of , as FreightWaves readers know well. The cost of a container shot up like a meme stock, with spot rates eventually hitting tenfold their usual cost. According to the Freightos Baltic Daily Index, at its peak in early September , moving a container on the spot market from East Asia to the west coast of North America cost just over $20,000. Two years prior, pre-coronavirus, that same move was priced at under $1,600.
Compared to , furniture manufacturers are enjoying much, much lower transportation costs. But, furniture insiders told FreightWaves the cost of materials has remained high. Labor has become more expensive as well.
Furniture brands have also had to slash sticker prices as demand slumps. Other industries, ranging from food to airlines, enjoyed elevated profits in . Their prices were elevated from years past, but their costs had started to sink.
Not so for the furniture industry. (By the way, none of the bulleted companies responded to a FreightWaves request for comment.):
The annual report of Purple, a mattress company, stated something that echoed across the home furnishings space: &#;In , our gross profit and results of operations were adversely affected by elevated levels of materials, labor and freight costs and lower demand levels.&#;
Here&#;s what happened, in case you just want the high-level view:
You, me and the guy who lives under the biggest rock in the entire world know this story, but again I will tell it.
In March , when the world was shutting down in what was then called the novel coronavirus, furniture manufacturers assumed they would be out of commission for a while. Instead, just a few months later, bored consumers started buying a lot of stuff, especially furniture. It was very chaotic, as longtime furniture analyst Jerry Epperson told FreightWaves.
&#;Many of our stores had canceled orders,&#; said Epperson, who is managing director of investment bank Mann, Armistead & Epperson. &#;They didn&#;t know what was going to happen. Factories were closed and we had to get everybody cranked back up again. The demand so greatly exceeded our ability to meet it.&#;
In some cases, Epperson said, factories in Asia had reopened, but those countries&#; ports hadn&#;t opened.
Reasonably, furniture brands started ordering tons to ensure they had decent inventory for what seemed like a bottomless hunger for more furniture.
Within months, though, the cost of importing that furniture became untenable. The sudden uptick in costs, including freight and materials, caught brands by surprise. Ken Smith, a longtime accountant in the furniture industry, said some producers tried to ask their buyers for a price increase &#; and many refused.
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&#;A lot of people lost a lot of profitability by staying with their original pricing,&#; said Smith, partner at accounting firm Smith Leonard. &#;That&#;s one of the things that hurt so many companies, especially those that were importers. You were taking orders right and left, and freight rates were going up like crazy. You weren&#;t pricing those goods expecting freight rates to do what they did.&#;
How many couches do you think are in these containers? (Photo: Jim Allen/FreightWaves)Just about everything we buy that&#;s manufactured overseas comes to the U.S. in a 40-foot ocean container. It&#;s trickier packing one of these containers with sofas than, say, socks. Sofas are a lot heavier and bigger. They don&#;t compress like socks do. You&#;ll likely run out of space or weight pretty quickly in one of these containers.
And with low-cost wares, like my asymmetrical mirror, that means some furniture companies were paying more to ship their containers than what the actual stuff in the containers was worth.
Price increases came soon after. After that, it was a highly profitable time for the furniture industry, which tends to not be so lucrative.
One key reason for the uptick in furniture sales was the fact that people were buying new homes and even building homes. Such sales sharply curtailed in early as the Federal Reserve began raising interest rates to combat inflation.
That plummeting demand ended the party for the furniture industry &#; and with a massive hangover in the form of an inventory glut. Americans seemed to order more and more stuff, and manufacturers and retailers provided. In early , they stopped pretty much all of the sudden.
Furniture and home furnishing sales dipped by 8.0% in the first quarter of , while retail trade more broadly decreased by 0.6%, adjusted for inflation, according to the U.S. Bureau of Economic Analysis. In total, furniture sales declined by 7.4% in , compared to 0.9% for all retail sales.
&#;Everybody knew it wasn&#;t going to last, but fell off somewhat unexpectedly &#; maybe a little more than what we thought,&#; Smith said.
That left furniture brands with an absurd amount of inventory. That inventory could have been stocked in warehouses or left in containers in a Chicago railyard or Los Angeles terminal. Inventory levels popped by 40%-50% year over year in certain months of , Smith said.
It costs money to keep all that inventory stored, which dragged down the industry&#;s margins in . In an October report, Morgan Stanley highlighted home goods companies like Williams-Sonoma as ones that were particularly at risk for elevated inventory and depleted sales.
&#;It&#;s sleeping money sitting in the warehouse,&#; Mike Padjen, vice president at American Home Furnishings Alliance, a trade group, told FreightWaves.
In January , Smith&#;s survey found that inventory levels were 20% higher than at the same time last year but down from the previous month. Consumers are still buying perishable goods at a regular clip, but they&#;ve largely turned away from durable goods, like furniture, in the past year.
&#;I thought we&#;d be pretty well through [the inventory] by the end of ,&#; Epperson said. &#;But we are not. It&#;s still a significant problem.&#;
Tragically, a lot of that furniture can&#;t even be sold, Padjen said. It&#;s passe!
&#;People are looking for new items,&#; he said. &#;The demand that&#;s out there isn&#;t for stuff that is 2 and 3 years old. It&#;s for new products, especially on the retail floors.&#;
Some of the inventory is also just &#; kinda wonky. Think chairs without their matching ottomans, or vice versa.
&#;We were so desperate for product,&#; Epperson said, referring to upholstery in particular. &#;Our retailers would buy anything they could get just to not have an empty wagon.&#;
Some portion of that inventory was moved during the height of the supply chain crisis, when freight was exceedingly high. Unusually high sticker prices for consumers were supposed to combat that. But now, even if that un-trendy furniture sells, it will likely be for far lower prices than intended.
A container ship entering the Port of Los Angeles, possibly carrying a ton of untrendy furniture. (Jim Allen/FreightWaves)There are other quirks. Furniture makers have been on edge waiting for a federal rule around no-tip furniture, which could revamp how they test their wares. The strong dollar hasn&#;t been favorable to U.S.-based companies that manufacture overseas.
&#;Since April, we&#;ve seen the dollar weaken, and that&#;s raised prices again,&#; Epperson said. &#;Some people who just lowered prices recently have begun to raise prices. You can&#;t make this up.&#;
As a result, Padjen said the profitability of the early s has been all but washed away.
&#;The furniture industry probably enjoyed higher profitability [until early ],&#; he said. &#;But all this other stuff has pretty much taken all that.&#;
Some say they&#;ve been able to lower prices without a massive hit to their margin, in part thanks to lower freight costs. Two high-end, business-to-business furniture vendors told Business of Home in February that declining freight rates have allowed them to slash prices, too.
And, to return to my dumb Amazon mirror, I was stunned to learn that the piece is now about half the price I bought it for more than two years ago &#; even though the price of glass has skyrocketed since then. Dagnabit!
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