A recent furniture industry analysis by Kidder, Peabody & Co. of New York provided some welcome news to furniture manufacturing executives worried about slumping sales and profits.
The analysis provides some hard figures to show what several analysts have been preaching lately: The furniture industry could shed its sales slump in the second half of this year.The main factor fueling this optimistic report by Barbara Allen, an analyst for Kidder, Peabody, is her estimate that consumers with adjustable rate mortgages (ARMs) have spent between $11 billion and $14 billion on higher mortgage payments during the past two years. This summer, however, these ARMs will be adjusted downward, giving these consumers the wherewithal to remodel and decorate their homes.
``It looks to me like we've got two years of pent-up demand' for home furnishings, Allen said. The typical holder of an ARM, Allen says, has an $80,000 mortgage and an annual income of $55,185.
Allen believes many of these mortgage holders have put off buying furniture because of their uncertainty about whether interest rates would rise - increasing their monthly mortgage payments - rather than fall.
Bucking the trend One furniture manufacturer bucking the recent sales slump trend is Lexington Furniture Industries, a medium-priced residential furniture producer. Lexington has agreed to assume operation of Drexel Heritage's 386,000-square-foot production facility in Mocksville. Both Lexington and Drexel Heritage are divisions of Masco Corp. of Taylor, Mich.
``We've increased our sales each of the last three years by $70 million. We're doing about $250 million a year right now,' said Jay Young, executive vice president of Lexington. Young attributed Lexington's success to ``a great product, the quality's good, it's perceived as a value in the industry, and Lexington has good management and good employees.'
``The Mocksville facility is conveniently located near our existing operations, making it ideal for expansion and ease of integration,' said Young. ``We anticipate being able to offer job opportunities to the Mocksville employees in either Mocksville or at one of our Lexington, North Carolina, plants.'
Drexel Heritage will modify its facilities and expand its work force in the Morganton / Drexel area to absorb the transferred production volume. John Pastrone, president of Drexel Heritage, said ``because Drexel Heritage and Lexington are both divisions of Masco, we were able to work out an appropriate plan, accommodating both the employees and our future facility needs.'
Young said Lexington's expansion combined with Drexel's plans will mean a net increase of about 100 production jobs.
Official urges action Barry Merkin, president of the American Furniture Manufacturers Association, has urged AFMA members to contact their U.S. senators to oppose a bill in the Senate that would revise the Clean Air Act.
``The Senate Clean Air bill is thought to be the most costly bill of its kind to be considered by Congress. It is potentially devastating for a large segment of the furniture manufacturing industry,' Merkin said. ``It must be altered.'
Furniture manufacturers are particularly concerned about the air toxics section of the bill and provisions related to ozone, carbon monoxide and particulate standards.
``If Senate bill 1630 is not substantially changed, it could well mean that furniture manufacturers who emit extremely small quantities of chemical substances will have to install prohibitively expensive incinerators or carbon absorption systems,' Merkin said.
While the AFMA gears up to fight the bill, other groups are marshaling support for it. ``We're very much in support of it, although we think some parts need strengthening,' said Ed Norman of the N.C. Environmental Defense Fund. Norman said proposed state air toxic regulations would be even stiffer. He said the state's environmental management commission is slated to vote Feb. 8 on the proposed state rules.
Norman said manufacturers have been able to delay implementation of air pollution rules concerning carcinogens for a number of years. He also said furniture manufacturers have the potential to recapture and reuse many solvents, deflecting the cost of installing air pollution control equipment.
Sears still a player While furniture manufacturers fret about a shrinking retailer base, one large national furniture retailer moved recently to quiet fears it might exit the furniture business.
In a Dec. 11 letter to Wallace W. ``Jerry' Epperson Jr., an analyst with Wheat, First Securities, Sears, Roebuck and Co. Merchandise Group Chairman and Chief Executive Officer Michael Bozic said ``questions from analysts concerning the future profitability of furniture, as our new furniture strategy evolves, evoked a response from me that we would carefully watch profit levels and, if the business were not profitable, Sears would get out. In fact, this is true for every business that Sears is in!'
Bozic continued, ``Sears has no plans to exit the furniture business; in fact, just the opposite is true. We have chosen to increase our commitment to furniture.'
Sears has outlined plans to double its market share in furniture for the next three years, by opening free-standing furniture stores and expanding in-store furniture departments.
The retailer also intends to expand offerings of name-brand furniture, and Bozic indicated Sears' furniture efforts would equal in importance the company's move last year to install ``Brand Central' appliance and electronics departments in its stores.