U.S. Furniture Imports Seen Cutting Jobs, Retail Prices

April 18, 2002

HIGH POINT, N.C. -(Dow Jones)- Furniture imports to the U.S. will continue to grow, resulting in additional manufacturing job cuts but giving Americans better deals, some top manufacturing executives said Thursday.

Consider the case of Bernhardt Furniture, a closely held high-end furniture maker based in Western North Carolina . It has closed plants over the last 20 years as imports, even in its own product lineup, have increased, said Chairman and Chief Executive Alex Bernhardt. But imports' lower costs also helped the company this month unveil a mahogany dining room set similar in design but of better quality than one produced 13 years ago, he said. The new set will likely retail for $1,000 less than the $14,000 set produced in 1989.

"So that's deflation," Bernhardt said.

His comments came during a panel discussion on the opening day of the twice- yearly International Home Furnishings Market in High Point, N.C. , where 90% of the retail buying power in the U.S. furnishings industry comes to select new products for the fall. About 83,000 people attend the week-long event, which features 11 million square feet of furniture showrooms in more than 180 buildings, displaying enough furniture to reach the top of Mount Everest (news - web sites) and back 150 times.

Jerry Epperson, managing director of Richmond investment banking firm Mann, Armistead & Epperson, said imports made up 43% of all wood furniture sold in the U.S. last year, up from 29% in 1996. Imports were 13% of upholstery, up from 7% five years ago.

Economic data also show furniture shoppers are benefitting from lower prices. Wachovia Securities Inc. economist Mark Vitner said earlier this week that furniture prices have dropped 3% in the last year. "That's a pretty sizable drop when you look at areas of the economy where prices are falling," he said. "It's not just the price of imports that's falling. Domestically produced goods ... are seeing their prices falling as they try to compete with imports."

Epperson and others expect furniture imports to continue climbing.

"I don't think we're done closing plants," La-Z-Boy Inc. (LZB) Chairman Patrick Norton said of the furniture industry on Thursday. "We're a global society, so we will go where we can source it best."

La-Z-Boy, in fact, will send a group of upholstery executives to China and Taiwan in May to visit furniture plants that could be possible vendors.

"We have to stay alert," he said.

If U.S. manufacturers don't, Norton said, then others will. He cited the example of a former employee of his who left the company recently to start a furniture-import business - a company that's now generating annual sales of $200 million.

Incorporating The Imports

Still, furniture manufacturers said they've learned lessons from their counterparts in the textile and apparel industry, which has been hit hard in recent years by a flood of cheap imports. Furniture manufacturers are less combative about imports and haven't pushed for protectionist legislation, for example, Barnhardt said. Instead, they've tried to incorporate imports into their own businesses.

"You can either think of this as a challenge or give up," said Farooq Kathwari, chairman and chief executive of Ethan Allen Interiors Inc. (ETH), a manufacturer and retailer that imports about 20% of its products. "There are areas we can compete, you just have to make sure you don't burden your factories with a tremendous amount of items and finishes."

Ethan Allen produces more furniture now than it did 10 years ago, using nine fewer plants, he said.

Producing furniture that takes advantage of American technology and relies less on its more expensive labor begins with the design, he said.

Bernhardt agreed. A few years ago, manufacturers tried to design to the capability of the Asian factories, so ornate carvings that capitalized on the availability of cheap labor and rustic finishes that could hide imperfections were popular, he said. Some of Barnhardt's collections this spring use clear, clean finishes that are currently too sophisticated for foreign producers to reproduce.

U.S. furniture companies that provide great service will also distinguish themselves among consumers, Kathwari said. That is a major focus of Ethan Allen, which is beginning an effort to distinguish itself as the authority in home decorating.

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