Month: June 2017

furniture

The Furniture Industry Is Now More Competitive Than Ever

While the American furniture industry once primarily comprised large, family-owned companies, the sector’s landscape is now far more complex. Economic turbulence, technological innovations, and shifting consumer trends have shaken up the market, leaving players to contend with a greater number of competitors and strategic challenges than ever before. Read on to learn how to navigate this increasingly crowded market.

Renewed Economic Growth

Prior to 2007, the relative size and product scope of America’s major furniture companies had created a largely equal playing field that left many competitors neck-and-neck. Any competitive advantages or disadvantages tended to be short term, and smaller, independent retailers primarily competed within their own local markets.

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The economic turbulence of the Great Recession led to the emergence of a more varied and dynamic furniture industry. From 2007 to 2015, widespread economic decline caused some 12,000 furniture stores to close their doors. Fortunately, the sector has shown strong signs of recovery. The furniture and home furnishings market has surged at a compound growth rate of 4.1 percent over the past five years, reaching a value of $96.57 billion in 2016.

As the addition of new furniture retail outlets in major markets across the nation heralds the industry’s return to prosperity, much of this growth is coming from familiar faces. As smaller retailers folded to the pressure of the recession, several larger independent and regional companies have seized the opportunity to branch into newly accessible markets such as Dallas, Phoenix, and Chicago. But while these major players continue to expand, the ever-growing presence of technology is allowing new competitors to stake their claim within the digital sphere.

The Evolving Retail Experience

Consumers’ shopping habits have changed, and furniture companies face new challenges in attracting people to stores. In addition to opening new retail locations in order to fill the void left by smaller entities exiting the market, larger companies have also sought to expand their reach to meet shifting consumer demands.

Today’s furniture shoppers are beginning to favor geographic convenience over the concept of an elaborate furniture retail destination. While it was not uncommon for shoppers to visit four or five different furniture retailers before making a purchase 10 years ago, people are now shopping at just one or two different locations. In order to make this coveted shortlist, retailers are opening more stores in a more varied selection of markets.

This influx of new retail locations has greatly diversified the options available to consumers. While independent furniture retailers have relinquished some of their market share, lifestyle stores, specialty bedding companies, and vertically integrated brands such as Ashley HomeStore have attracted a larger portion of sales. In addition, the Internet stands out as the fastest-growing channel among non-traditional furniture retail platforms—by 2015, e-commerce accounted for 19 percent of all furniture sales.

Although e-commerce should be a major strategic consideration for every furniture retailer going forward, growth in online sales has slowed, indicating that many consumers still want to see and touch a major furniture purchase before taking it home. Brands now face the task of making brick-and-mortar stores worthwhile destinations for consumers in the digital age. Even Amazon, the global giant in online retail, has expressed the possibility of establishing brick-and-mortar furniture stores.

Rising Costs

Greater competition and an otherwise dynamic business landscape have created new financial needs for furniture retailers. As companies add more stores with more elaborate designs, many of them in emerging high-income markets, they face higher occupancy costs. Some traditional strategies assume that an increase in brand presence will reduce the need for advertising, allowing a smaller marketing budget to offset increased occupancy expenses.

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However, the explosion of e-commerce has created new advertising costs as well. The need to create customer-friendly, efficient online shopping platforms; effective email and text outreach efforts; and an engaging social media presence have all impacted the advertising budgets of most furniture retailers.

Following the Trends

Faced with the challenge of rising occupancy costs, changing advertising strategies, and greater competition for customers’ attention, furniture retailers must heed emerging consumer trends in order to stand out in the crowd. While digital disruption has made e-commerce and social media important for companies seeking to reach new audiences, a retailer’s technical capabilities are not the most prominent selling point for most consumers.

In fact, a recent consumer survey conducted by The Fuld Institute of Competitive Strategy found that, among furniture shoppers who had made a purchase over the last two years, price beat out other factors such as quality, convenience, and brand name to serve as the most influential decision-making factor. This suggests that furniture companies may be able to gain a competitive edge by appealing to more modest budgets, or by expanding into innovative territories such as multiuse furniture.

Furniture retailers can also connect with consumers by respecting their preference for personalized service. As big data and technology facilitate curated subscription boxes, music platforms, and other consumer services that cater to individual needs and tastes, shoppers have come to expect more options throughout the buying process. By taking full advantage of customer research and technology to deliver services such as product recommendations, custom order processes, and home design tools, companies can better cater to the needs of the modern consumer.

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This Industry Is Spurring New Growth in the Furniture Sector

The ebbs and flows of a number of industries have a significant impact on the furniture sector. Including trends in interior design, advances in logistics and, more recently, technology, a variety of forces throughout the economy frequently present new challenges and opportunities for furniture companies.

In recent years, the housing industry has been one of the most significant external factors impacting American furniture sales. After the 2007 financial crisis sent the real estate sector into a downward spiral, the market is finally showing signs of recovery. With more individuals now moving into their own spaces, furniture companies have a chance to grow exponentially.

Trending Upward

housingAlthough it has yet to reach levels seen before the recession, the US housing market is exhibiting clear signs of recovery. Other than a slight decline in 2014, sales of existing homes have gradually risen in recent years, increasing 3.8 percent from 2015 to 2016. The 5.49 million homes sold in 2016 nearly reached the peak established in 2007, when 5.65 million existing homes were sold.

There has also been a gradual increase in the construction of new, single-family homes. Although the 559,000 new houses sold in 2016 were still 27.8 percent lower than the 2007 peak of 769,000, new home sales have increased by an impressive 82.7 percent since 2011.

The only housing market metric to exhibit a marked decline in recent years has been the construction of new multifamily buildings. But while the construction of new multiunit complexes decreased by 13 percent in 2016, the construction of single-family homes grew by 7.5 percent, and is expected to grow by 8.1 percent in 2017.

All of these factors have resulted in the lowest rates of rental unit and home vacancies in three decades. Rental vacancy rates fell to 6.9 percent in 2016, with the tightest housing crunches felt in metropolitan areas and their surrounding suburbs.

What This Means for the Furniture Sector

homeHousing growth is a natural boon for the furniture industry, as the move to a new home or apartment is one of the most common motivators behind a new furniture purchase. In the US, the furniture industry is growing at a faster pace than the broader economy. The US furniture market was valued at $96.4 billion in 2014—and it is projected to increase at a compound annual growth rate of 2.9 percent through 2019.

As millennials begin to establish their careers and move out on their own, they have become the largest segment of the furniture-buying population, overtaking baby boomers. While millennials made up just 14 percent of furniture sales in 2012, spending approximately $11.1 billion, this number more than doubled to comprise $27 billion in furniture sales in 2014.

With millennials driving growth in the housing market and, therefore, in the furniture sector, furniture companies must consider their unique needs and tastes to make the most of their purchasing power. Furniture designers and retailers can benefit from catering to the millennial desire for personalization, as well as their eagerness to engage with socially conscious and sustainable organizations.

Of course, technology also plays a significant role in the lives of not only millennials, but people of all ages. To cater to a new era of home renters and buyers, furniture companies must provide a convenient, secure, and engaging e-commerce experience—online sales are expected to contribute 30 percent of all furniture business in 2018, up from 21 percent just four years prior.

Furniture companies must also consider the ever-growing role of technology in their designs. Furniture equipped with wire management systems, charger ports, and other tech accommodations can blend seamlessly into a digital lifestyle, while a rise in telecommuting has driven demand for home office furniture outfitted for tech-heavy workstations.

The Matter of Mobility

While home purchases and rentals are on the rise, it is worth noting that mobility is at an all-time low. The percentage of Americans moving to new homes has steadily declined since the 1950s, falling by nearly 50 percent. As moving is a major life event that frequently leads to furniture purchases, companies must take a closer look at the people who are still moving, in order to successfully market to them.

At present, the Americans moving most often are typically non-married renters younger than 35. The younger the individual, the more likely they are to move: twice as many 20- to 24-year-olds (23 percent) and 25- to 34-year-olds (20.1 percent) moved in 2016 compared to individuals in the 35 to 44 age range. Additionally, less than 4 percent of adults older than 55 moved into a new house or apartment.

Americans who move more often also tend to earn less money. This suggests that affordability may be an important factor for furniture companies to consider when seeking to cater to customers in 2017.

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3 Recent Regulatory Updates That You Need to Know About

Though business leaders in the home furnishings sector must keep a watchful eye on ever-changing aesthetic trends, consumer tastes are not the only factor influencing furniture design and supply chain decisions. In order to keep their operations efficient and compliant, furniture companies must stay abreast of evolving regulations governing the sourcing, manufacturing, transportation, and sale of their products.

New laws and federal agency rules are constantly creating new challenges and considerations for furniture firms. The following are some of the most recent regulatory developments impacting the United States furniture industry:

  1. The New EPA Rule on Formaldehyde Emissions

The United States Environmental Protection Agency (EPA) recently issued a new rule aimed at limiting the health risk posed by formaldehyde in consumer products. Certain items made of composite wood, such as furniture, cabinets, and flooring, can emit levels of formaldehyde that may be harmful to both humans and animals in the home. Sustained exposure to this colorless, odiferous, and highly flammable gas can cause health complications related to the eyes, nose, and throat, including conditions as serious as cancer. For this reason, the EPA’s new rule establishes stringent formaldehyde emissions standards for composite wood products sold in the United States, setting up one of the world’s strictest regulatory frameworks governing formaldehyde content.

In December 2016, the EPA issued the final draft of its formaldehyde emissions standards. The newly finalized rule outlines guidelines for compliance with the 2010 Formaldehyde Standards for Composite Wood Products Act, which comprises Title VI of the Toxic Substances Control Act. It applies to both imported and domestically produced composite wood products, including hardwood plywood, particleboard, and medium-density fiberboard, as well as finished products containing these materials.

The final version of the EPA’s formaldehyde rule is extremely similar to the pre-publication draft released by the agency in July 2016. It sets forth requirements for product testing, labeling, and the management of records such as chain of custody documents, in addition to setting up a third-party certification program and establishing standards for the accreditation of these certifying bodies.

The final rule also provides specific limits for the formaldehyde emissions of certain composite wood products. It caps hardwood plywood emissions at .05 parts per million (ppm) and limits particleboard to .09 ppm, while medium-density fiberboard and thin medium-density fiberboard may contain .11 ppm and .13 ppm, respectively. These standards may be familiar to some furniture industry professionals, as they largely mirror the formaldehyde emissions guidelines upheld by the California Air Resources Board between 2009 and 2012.

The EPA’s formaldehyde emissions standards for composite wood products are the result of significant research, deliberation, and industry collaboration. An initial draft of the rule proposed in 2013 met significant industry resistance due to what many companies deemed excessive testing requirements. After drawing on the feedback of industry members to develop more mutually acceptable guidelines, the EPA released its final rule, with an intended effective date of February 10, 2017. However, a mandatory regulatory freeze enacted by the incoming presidential administration in January 2017 extended this date by several weeks on two separate occasions, ultimately pushing it back to May 22, 2017.

Furniture industry suppliers, manufacturers, and retailers who still need to familiarize themselves with these new regulations may review them here.

  1. Department of the Interior Regulations Requiring Sustainable Rosewood Imports

Rosewood is a popular material often used to give an elegant flair to the exterior of higher-end furnishings such as tabletops, headboards, and drawer fronts. However, the irresponsible sourcing of rosewood can have dire consequences for the ecosystems where rosewood thrives.

On Janury 2, 2017, the US Department of the Interior’s Fish and Wildlife Service formalized a rule that will ensure the legal, environmentally responsible sourcing of rosewood. The new regulation applies to nearly 300 major species of rosewood within the genus Dalbergia, as well as kosso (also known as African rosewood), East Indian rosewood, cocobolo, and Honduran rosewood.

It requires companies to obtain permits proving that their rosewood suppliers are harvesting the material legally and sustainability, and with no phase-in period, the regulation has required furniture companies to promptly assess their supply chains for compliance. Following the issuance of the new rule, many firms found themselves conducting audits of shipments currently in route to avoid issues at customs.

The Fish and Wildlife Service’s new rosewood regulation falls under the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES), an international treaty designed to ensure that business practices do not endanger natural habitats or the species that they host. Ratified by 182 nations since its establishment in 1975, CITES currently defends over 35,000 plant and animal species.

  1. Impending Duties on Chinese Plywood Imports

Mounting concern over unfair international trade practices could lead some furniture companies to reexamine their supply chains. In November 2016, a group of 12 American hardwood plywood manufactures, collectively operating as the

Coalition for Fair Trade of Hardwood Plywood, filed a petition alleging that unfair pricing practices by Chinese suppliers have led to layoffs and financial losses throughout their sector. To remedy this, the petition specifically requested that the government levy new countervailing duties on Chinese plywood imports, which would account for alleged subsidization provided to Chinese firms by the nation’s government, as well as anti-dumping duties, which would address concerns that suppliers have imported materials to US manufacturers at prices far below the cost of raw materials.

After several months of deliberation, the US Department of Commerce recently announced countervailing duties of up to 111.09% for 61 Chinese board producers. Going forward, the department may establish additional anti-dumping duties, as well as duties to address the financial damages sustained by the petitioners.

It is important to note that these duties do and will not apply to finished products imported from China. Rather, they apply only to panels imported for the construction of furniture within the United States, excluding all structural panels intended for use in ready-to-assemble furniture. While industry experts allege that these duties should have no immediate significant impact on American furniture companies, they may very well lead American furniture and cabinet companies to reassess the cost efficiency of their supply chains.