Case goods increases a hard, but necessary choice

HIGH POINT — Rising manufacturing, materials and shipping costs are expected to have an unavoidable impact on wholesale furniture prices, as many case goods sources say they have delayed passing along the increases before now. Shipping costs, including higher container costs caused by high demand and capacity issues, have caused […]

HIGH POINT — Rising manufacturing, materials and shipping costs are expected to have an unavoidable impact on wholesale furniture prices, as many case goods sources say they have delayed passing along the increases before now.

Shipping costs, including higher container costs caused by high demand and capacity issues, have caused container rates to nearly double, a situation some are addressing through temporary container surcharges. Though such surcharges cause short term angst, they will likely stabilize once again as peak season demand eases and capacity opens up once again.

What industry officials say will be more permanent are the price increases they will have to pass along due to rising lumber, MDF and packaging prices, as well as the cost of land and labor in places such as Vietnam, where industries have moved from China to avoid tariffs on finished goods.

“Vietnam is overwhelmed with too many people going there at the same time,” said Michael Amini, CEO of full-line furniture resource AICO. “Major production companies that used to manufacturer in China have moved to Vietnam.

“Everything is going up. Labor is going , and so is the cost of manufacturing, land and construction,” Amini added, noting that the situation is further complicated by high demand for materials from China, such as stainless steel, glass, marble, lighting and electrical components, and hardware.

Because of the scarcity of — and delay in getting — materials from China, Amini said this is affecting production schedules in other places where manufacturers are waiting for those materials to build finished product. And once the goods can be shipped, it is affecting the availability and price of containers to flow those items from China to Vietnam.

Amini did not say that this would result in a price increase at AICO, which had its last price increase about five years ago on select merchandise. However, he said the cost pressures are indeed real.

“We have to adjust to this manufacturing environment like everyone else,” he said. “We work on tight margins. Although we are an exotic and design-oriented company and produce high-volume product, we still work on a very tight margin. Once there is a drastic movement in components and labor, we — like everyone else — will have to cope with that in terms of adjustment.”

‘In this together’

Crystal Nguyen, vice president, merchandising for Coaster Fine Furniture, said that China is experiencing increases mostly with metal and stainless steel costs that are expected to take place in early 2021. She added that, with the currency exchange rate no longer in China’s favor, manufacturers there will have to increase costs as necessary.

However, she noted that her cost increase for China goods has been minimal since many manufacturers still see the U.S. as an important export market and thus are doing their best to hold down prices.

“It is only less than a handful of sources, and we are able to cap it at 3% so far,” she said. “The bottom of promotional-level goods from China are the ones requesting 5%, as this level has no room for margin. If it’s a strong seller, we cap off it off at 3%. If it is not, we are comfortable to drop the SKU.”

She added that the company has seen a few cost increases from manufacturers in Vietnam due to materials coming from China, along with inflation due to high fuel and food cost increases. She added that Malaysia has not seen significant increases in costs, but the lead times have increased substantially.

“I would say production capacity and lead times are a thorn in our side for now,” she said. “However, we are all in this together. … The good news for Coaster is that our sourcing comes from many countries, and we have a wide assortment of products, so we have flexibility in merchandising and cost increases where it makes sense.”

As the company will not publish its price list for the next year until later in January, Coaster is still evaluating pricing decisions.

Nguyen said the company has not had a freight surcharge in the past and does not plan any in the near future unless shipping costs get much worse.

Lumber supply off

Some have already implemented price increases in the low to mid-single digits. For example, Vaughan-Bassett passed along a 4% to 5% increase in August. This has been the company’s first price increase in at least a year, according to Doug Bassett, president.

Bassett attributed this latest increase largely to the rising cost of lumber.

“Lumber is a big one that is going up,” he said. “What we are hearing from a number of the lumber folks is that it is difficult to run a manufacturing operation in the middle of a pandemic. It is not only the materials, but also the cost to run any type of factory. Those costs are going up because of things like the need to social distance.

“Also, all of our suppliers are under same pressures, so prices on almost all of our parts and supplies are going up as well,” he added.

Tom Inman, president of the Appalachian Hardwood Manufacturers Inc. trade association, said that lumber prices have been up slightly. This, he said, is due to a host of factors largely dealing with supply and demand in the COVID-19 environment.

“Lumber production has been off and reduced for the summer because of COVID-19,” he said, noting that work at mills in April, May and early June were scaled back because they were receiving no orders from many factories that were shut down. Much of what mills had produced up to that point was going into inventory.

“As companies have come back online, they have been able to sell that inventory in late July and into August,” Inman said. “Now they are catching up (with new orders in September). It is a supply issue.”

He noted supply and demand has affected lumber exports, too, as many factories in Vietnam had to cancel lumber shipments from the U.S. since they were not getting the hardware from China. Those plants had no extra space to store the raw materials while waiting for those other components to arrive.

Mid-single digits

Legends Furniture said it was expecting to implement a 3% to 5% increase affecting inline goods starting in early October. This is due to a host of cost increases on materials such as glass and metal that are affecting the cost of finished goods, both import and domestic.

The company also had a small price increase in January, largely related to materials and labor costs on the domestic side. Typically the company spreads its price increases at least two years apart, but the cost pressures this year have been dramatic.

“We have had a significant increase in lumber prices here for our domestic product,” said Tim Donk, director of marketing and business development at Legends. “Anything over 1% is significant because we run so tight on everything.”

While others interviewed for this story had not implemented any price increases by press time, they note that any increases between now and the end of the year would likely be in the same mid-single-digit range.

Factory relationships

So what would a 5% increase look like? This, of course, would vary by product. But it could raise the price of a table-and-four-chair dining set that retails at $999 by roughly $22 wholesale, boosting the retail price to around $1,049 if not higher. For a four-piece bedroom that retails $1,299, might raise the wholesale value by about $30, raising the retail price by another $60 to $70 for the set.

How individual cost increases from the factory get passed along depends too on how important the importer is to the factory.

Sources say larger volume customers — that occupy a No. 1 or No. 2 spot in the plant — may face a lesser impact based on their negotiating power. Smaller customers are more vulnerable.

For instance, some importers told Furniture Today that factories have been jacking up the price on groups they see as less profitable to produce. So by raising the price on a particularly group, they can better control their profitability on that specific line.

Yet, if this increase is too much for the importer to absorb, or more than their retail customers want to pay, the importer may be forced to drop the group, even if it’s a good seller.

“This is a situation where factories have a lot of leverage,” said Michael Lawrence, vice president, sales at Najarian Furniture, noting that factories are looking at what is profitable and arranging their production accordingly. “You have to lean on your relationships with the factories. Definitely the factories are wanting to make sure they are ok going into next year.”

Other sources said that factories that are buying materials further out in conjunction with longer lead times may be less susceptible to cost increases on materials such as lumber compared with those that buy materials in smaller quantities in order to save on upfront costs or because they have limited warehouse space for raw materials.

Other industry experts, still, note that some factories in Malaysia are seeing shortages of Asian hardwoods. Combined with overall industry demand, this is having them push production dates to next spring.

“Coming out of Premarket, I issued cuttings on a lot of stuff, and a lot of that isn’t producing until March and April,” said Greg Noe, president of full-line resource Bernards Furniture Group.

While he hasn’t seen any significant price increases from manufacturers in Malaysia and Vietnam, Noe did say that the capacity is so tight in Asia that some plants aren’t even taking on new sample production.

“These factories are so full they can pick and choose what they want to make,” he said.

Container costs also have been an issue the company has dealt with of late, with container prices rising from $3,400 to $6,200 in the past four months. Noe said the company will wait and see if these rates keep rising before deciding to pass some of those costs along through a temporary freight surcharge.

Pricing decisions

Lee Boone, co-president of Home Meridian International, whose wood divisions include SLF and Pulaski, said that while the company is not seeing any big cost pressures relating to inline goods, it also is seeing pressure relating to the container costs. As a result, it planned to implement a temporary freight surcharge on Oct. 2.

“Ocean freight is not a cost of goods, but it is a cost of business,” Boone said. “We ate the cost increases all summer long, and the cost increases are significant. We had no choice but to pass some of it along.”

Others continue to look at these and other costs, and most plan to decide what to do by year end regarding prices.

“Basically we have been hearing about this for a couple of months now,” said Lawrence, of Najarian Furniture, regarding materials cost increases. “We are working on it factory by factory and group by group. In general terms, whether it is MDF or poplar, those prices are going up 12, 15 or 20%, and they will have to get passed through the system.”

He said the company is still studying and evaluating pricing going forward, making sure it gets it right the first time around instead of having to come back with a second increase shortly after.

“Any increase we pass along would not be retroactive,” Lawrence said, noting that the 4% to 5% increase the industry is talking about is in line with “what we are seeing with factories. That is tight to be able to absorb. By the end of the year we will have made a decision. We just want to … do it all at one time vs. piecemeal. We don’t want to keep passing it along.”

Klaussner Home Furnishings originally planned to implement a price increase in April or May. However, it held off due to challenges the industry faced at the time that had many non-essential businesses closed for several weeks.

“We were planning on it, then we backed off,” said H Kelly, senior vice president of case goods and outdoor at Klaussner, noting that the company hasn’t had any price increases in at least the past two years. “Now we are moving forward with it again.”

While it was too early to say which goods will be affected and by how much, Kelly noted that the company will decide what to implement on the wood side in the next two months.

“We are still evaluating it,” he said. “You want to make sure it is effective so you don’t have to do it again later.”

Source Article

Next Post

Blog: In appreciation of industry’s great sales reps

This pandemic has made us appreciate many folks that are often ignored in normal days. Of course, there are the healthcare workers who are exposed to the pandemic dangers, the emergency workers, the volunteers and then there are the people stocking the shelves at necessary retailers, the folks making deliveries to our […]