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Hearth & Home September 2018

Morro Bay deep-seating from Gensun.

Sitting Pretty

By Richard Wright

Once more, weather was the unwelcome guest at the patio furnishings party. This time the guest arrived at the beginning of the season, either in the form of relentless Nor’eastern storms or, a bit later, unseasonable heat that pushed thermometers into the 90s – for weeks at a time.

Despite such difficulties to contend with, our six Sitting Pretty interviewees were able to post respectable numbers. Three were up in double-digits (one was up 20% but stressed that it’s still a rather new business). One was up 5 to 10%, and the other two were down “a couple of points,” and “down right now, but I feel pretty good.”

The specialty retail channel remains the bread and butter for all six manufacturers. The percentage of products going through that channel varied from 50% to 100%; the average is 66%.

Sales through full-line furniture stores were surprisingly strong for two of our interviewees; one has 30% of its sales going through that channel, the other has 40%.

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Christy Peterson Gary McCray Hlodver Olafsson
Jan Trinkley Tom Murray Wes Stewart

Cordial Lounge Chair.

Hlodver Olafsson has been in the furniture business for 45 years, from his start in Iceland to Denmark to Indonesia to Bolivia, and now the U.S. Since 2013, he has grown the company to 400 dealers, while overseeing winning collections such as Coral.

Hearth & Home: What year did you come into the United States with Jensen Leisure?

Hlodver Olafsson: “The company hired me in 2008. I spent the first four years in Bolivia where the parent company is located, as well as our manufacturing, and then I moved to the U.S. in January 2013.

“The group had been selling some furniture into the U.S. in the past. Jensen was established in 2008. The group has been doing outdoor furniture for the European market for 25 years. They were doing big volumes through the DIY market in Europe; they did containers for years to those companies and then that market switched over to Asia over time, specifically China and Vietnam.

“So when that market was slowly going away that is when they started looking at the big market over here and how they could get their feet into the U.S., and at the same time Jensen was having difficulties with supply and costs in Australia, so they found each other and Jensen Leisure Furniture was established.

“We actually have a sister company, a similar setup of Jensen, in the UK servicing the European market.”

Then they found you. Before you went with the group did you have a background in furniture, or in sales?

Olafsson: “My background is definitely in furniture. My father was a cabinetmaker so I was around him when I was a kid and was young when I started actually working in a furniture plant in Iceland. So my first job was in 1973, and that is 45 years ago making furniture.

“Later, I finished as a cabinetmaker and then I started with engineering in Denmark. Through that education I got to know the people who were then owners of the Gloster group, and they offered me a job in Indonesia in their manufacturing plant. Gloster was not a part of the group for the first couple of years, and then they purchased Gloster and Gloster took off.

“After nine years in Indonesia I moved to the U.S. for Gloster for three years, and then spent a couple of years in England. At that point I semi-retired back to Iceland for a few years until I got this opportunity.”

How well did you do in the U.S. this year?

Olafsson: “We did pretty well. We are going to be up on last year. We had a slow start to the season that was mainly due to weather or that is how we see it. In the Northeast, as you know very well, and the Midwest, they lost the first couple of months of the season due to weather. But it has picked up and picked up very well for us, and we are going to end up at the end of the year somewhere between 5% and 10%, and we are pleased with that considering how things have been going weather-wise and the market.”

What percent of your business right now comes from online sales?

Olafsson: “That’s easy to tell you – zero.”

Terrific. Are you planning on keeping it that way?

Olafsson: “We have been discussing it a lot in the company at the moment. Of course our dealers can show our line on their website, but we don’t allow showing pricing online. That is how it is and I am not saying that it won’t change because we are watching what’s going on. Personally, I don’t think you create many sales when you are talking about high-end, expensive patio furniture.”

Well, I for one love the specialty retailers, the Mom-and-Pop stores.

Olafsson: “For our business that is definitely where we will keep our main focus – on that customer.”

You have a wonderful story to tell potential and new dealers, which is we don’t allow any sales over the Internet unless it is your market area; as a company, we are not going through online sellers. That is a very strong, strong message.

Olafsson: “Yes. You can Google almost any company in this industry and find their furniture with prices online. So it looks like we are the dinosaur out there. But so far we are not doing it, and we will see what happens in the future.”

What percent of your business is through the specialty patio channel?

Olafsson: “Specialty patio retailers are 44% of our business. Hearth & Patio are 17%; full-line furniture stores are 15%; designers are 12%, and Other are 12%.”

Which areas of the U.S. were the strongest for sales?

Olafsson: “The Northeast has always been our strongest market, and the Midwest and the South are also very strong territories for us. We think Colorado to Illinois is a very strong area and then the South – Texas, Georgia, Florida, and then from Virginia up to New England has always been our strongest market territory.”

That is where most of the people live, in that corridor?

Olafsson: “Right. In New England, the coastal area is very strong. The company has changed, but still the biggest part of our business is wood furniture, and the New England market is definitely a strong wood market.”

Well, up here we all have good taste.

Olafsson: “That’s what I say. Absolutely. We have great sales there and great customers. It’s great just dealing with people who understand the product.”

I have heard quite a few people say that they are not doing well out west particularly in California. Are you finding the same thing?

Olafsson: “Yes.”

What percent of your specialty retailers would you say are doing great, that their business is very strong and growing?

Olafsson: “Sixty-five percent of our retailers are doing better than the prior year. Then you have a number of dealers that are flat, and 20% are down. We studied that this year; we have been looking at it and who they are, and where they are, and we believe a big portion of that is weather-related.”

Pretend that I’m a dealer and I don’t carry your line. Tell me why I should carry it. In other words, what are your main selling points?

Olafsson: “Well, we have a top-quality product and it is reasonably priced. We put our pride in our customer service and that is our top priority – to have good customer service. We want all of our dealers to know that we stand by our product, and we want to work out a solution whenever there is an issue.

“As a company, we have strong growth behind us. We are working diligently, and we manage our own forests. We have our own manufacturing of wood furniture, wicker furniture, and our cushion production is in-house. We have our own warehousing, and we control the distribution. So we think we are a reliable company for any new dealer. We already have a track record with many years in this industry.”

What is the size of your main company?

Olafsson: “I can’t put any numbers on it, but it’s a big growth company. It is big in forestry, and in wood manufacturing, not only in furniture. It produces particle board, plywood veneer flooring and other wood products.”

Are there any significant trends that you have noticed in the industry? It could be Millennials buying furniture, or it could be contemporary design that a number of people have mentioned. Or it could be fabric colors or whatever.

Olafsson: “We have definitely been moving over to more contemporary, modern designs. We used to be a very traditional company and, in the last five years, we have been developing products that are modern.

“We can see a big trend in mixed materials. People are mixing wicker and wood, and you can see that in many companies today. You can see aluminum and wood. Then you have all the new materials such as rope and the strapping people are using in their designs today. I see this as a new trend and I think that is going to continue. We’re going to see new materials coming into furniture designs in the future.”

Where do you classify your company in terms of costs to the consumer? Do you consider your company a medium-priced company, or is it maybe high-end?

Olafsson: “We are mid- to high-end.”

How many new collections do you have this year?

Olafsson: “We have six new collections that we will probably show. Some of them are just a couple of pieces.”

Do you have a favorite that you think is going to be a winner?

Olafsson: “I think we have a very nice wicker line coming out, and we also have a nice wood design coming in deep seating and dining. We had a very good reaction to both at the Premarket, and those who have seen them have liked them, so we’re optimistic that we will do well.”

How many dealers do you have now?

Olafsson: “We are getting close to 400.”

That’s good. You must be very pleased with that.

Olafsson: “Yes. We have grown the dealer base with a number of dealers every year. We had some new ones come in July and we are expecting more in September, so we are quite pleased with the growth of the company. We are growing the business.”

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Morro Bay Padded Sling Dining Chair.

Gensun is one of the few patio furniture companies to also boast an outdoor kitchen complete with island, cabinets, drawers, grill or kamado cooker. Toss in the company’s fire pits and you’ve got a complete Outdoor Room, or rooms, because Gensun offers a variety of everything.

Hearth & Home: How were your sales this year so far?

Jan Trinkley: “This has been a tough year. I’ve talked to a lot of people in the industry and one of the biggest issues they see is global warming. Last year a lot of dealers lost May, which is a terrible month to lose. So they went into this year with inventory; early-buys were down in many cases, and dealers’ orders overall were down. Now they come into this year and get hit with another bad year of weather.

“We’re down right now, but I feel pretty good. A lot of dealers didn’t come to Premarket. They stayed back because sales have been okay and they want to keep going and clean up. We’re looking forward to a good second half of the year with the early-buys coming back in. Let’s hope next year gives us some decent weather. Even if it’s normal weather, dealers can do pretty well.”

But the fact that dealers do have product they are trying to move most likely accounts for why traffic was really down at the Preview Show.

Trinkley: “I agree. The show was different this year. We had a good Tuesday and Wednesday, mainly because we introduced so much new product. Our sales reps had been out showing pictures of all our new products; I think a lot of dealers were anxious to see it and touch it and feel it.

“We are in a fashion industry, as you well know. We have got to follow the trends. They come after the indoor markets, but the grays are really getting strong in the marketplace. New designs, transitional contemporary, are coming on strong. I can’t believe how fast it has moved into the industry. The look is fresh and clean. There are a lot of beautiful fabric choices.”

How many fabrics are you offering these days?

Trinkley: “Over 1,000.”

Here’s the other side of the coin. A few companies are limiting fabric choices to 20 or 30. They feel that’s ample, and more just confuses the customer. In fact, one manufacturer cited his experience buying a new $60,000 car. He was offered about 10 different exterior colors, and two colors for the interior. His point was, if the car companies can do that, then I should be able to do something similar.

Trinkley: “Well, I think you could argue his point pretty strongly. A lot of consumers, a lot of dealers, are not designers. The more choices you have, the more difficult it can be. Dealers have to help people make decisions. Show color schemes. Show product with a fabric and a finish that really looks good and blends. Have some easy fabric choices that will coordinate with that design. You really have to help people see things.

“The other side of the coin is that helping people through the process is what retailers, especially specialty retailers, need to do. The mass merchant doesn’t offer choices. There are a lot of quick-ship programs out there now that offer seven collections or five collections or three, and the fabrics are all beige and taupe. Some specialty retail stores are getting to look more like a Big Box store.

“A retailer cannot win that game. He or she can’t turn the floor enough times, and the costs are all still there on a lower-priced product – delivery costs, warehouse costs, floor space. It doesn’t stop, but if your dollars drop, your margins drop. One of the biggest worries I have is that there are so many companies coming in at the low end.

“There are so many beautiful product designs from companies, and beautiful fabric designs that the dealer really has an opportunity to show a beautiful look, a beautiful quality product, and a very excellent value.”

Do you get enough time out of the office to call on a lot of retailers and see what they’re doing?

Trinkley: “I really have not in the last couple of years. That is one thing that we’ve talked a lot about this coming year. I hired a Marketing manager this past year and she is doing a great job, so that I can get out and start traveling and seeing retailers and customers more.”

Tom Murray of NorthCape makes it a point every year to get out and call on 100 dealers. I’ve always wondered how he finds the time to do that.

Trinkley: “I think that’s great. It’s important to go see a retailer, to get on their page and see what they’re doing, to hear directly from their lips what is going on in their market. I think it is really important, and it’s something we will do this coming year.”

Are you finding that warm weather conditions slow sales just as much as cold weather?

Trinkley: “I think temperature extremes, no matter on which side, will affect sales of outdoor furniture. Cold weather running into the spring later. This past year it went from winter to summer in no time. When it’s hot and humid outside people don’t like to go out. You can’t sit there and enjoy yourself. When it’s cold and wet outside, you can’t go out and enjoy yourself. So, yes, I would agree that both sides of the coin are equally difficult.”

In earlier conversations, you’ve mentioned that about 60% of your business usually is in the East. Were any other areas particularly strong for you this year?

Trinkley: “We do well in the Midwest, on the East Coast, in the Southeast, and in the South. California is still struggling. We’re doing some nice growth up in the Northwest. We had been strong in Canada, but it’s a difficult market now given the exchange rate. For three years, the U.S. dollar has been much stronger than the Canadian dollar. We do well on the East Coast because we have strong programs that provide good freight rates across the country. That, along with the greater population on the East Coast, is why we do well.”

What percent of your business is through the specialty retail channel?

Trinkley: “Oh, the specialty retail channel is all of our business. We do not sell to the Big Box stores. We don’t sell a lot online; we’ve worked with one company this past year. We really only sell to the specialty retailers.”

What worries me is the volume of product being sold online. Nobody knows what that volume really is, but it has to be enormous. I have heard knowledgeable people say it’s well over $1 billion, and perhaps heading for $2 billion just in patio furniture.

Trinkley: “I would not argue that. Even the Big Box stores are selling a lot of patio online. Internet sales are growing fast. The Millennials love shopping online, using reviews, doing research, and then making the final purchase. That saves time. It saves the hassle. It saves money. But in today’s world, saving time is a big thing for a lot of people. At some point in the future we’ll probably buy everything that way.”

Have you been making an active effort to get into full-line furniture stores?

Trinkley: “No, we have not. We sell to some upper-end interior furniture stores, but the majority of the furniture stores that I see that have come into the industry are large chains and they are mostly interested in a price point and having the product on the floor for a short period of time. That’s not Gensun.”

I have always looked at the Outdoor Room as manna from heaven for specialty retailers, if they do it properly. Instead of selling a cart grill, you sell an outdoor kitchen and you’ve gone from maybe a sale of $3,000 or $4,000 up to perhaps $12,000 to $15,000. The difference is huge.

Trinkley: “You’re right. At Premarket this year we did vignettes with all of our furniture and kitchens with coordinating colors and coordinating designs. It’s a beautiful statement, and it shows the retailer how they can do it in their store.

“This year we partnered with a company called AEI Corporation. It makes PGS grills and appliances for kitchens. We expanded our offering to really encompass a breadth of products for the Outdoor Room.”

Contemporary, clean line design is certainly a trend. Are you aware of other trends impacting the industry?

Trinkley: “Well, Millennials are not in the price bracket to buy our furniture at this point, although a few are. But Baby Boomers are looking at more transitional/contemporary furniture for their Outdoor Room.

“The multitude of low-end companies coming in is a trend that I’m worried about for the specialty retailer. They need to differentiate themselves. They need to offer choices. They need to offer quality. Those are probably the two biggest trends that I see out there.”

How many new collections do you have this year?

Trinkley: “We introduced nine new furniture collections, three table collections, and then some new fire pits and fire pit tops, and some other accessories plus four new finish colors for our products.”

That’s called over-achieving, but you certainly are giving reps and specialty retailers something to sell.

Trinkley: “We really expanded our offering this year with the transitional/contemporary looks in order to have a beautiful offering from traditional all the way up to the contemporary modern.”

Are you concerned about the tariffs that our president is imposing?

Trinkley: “The negative side is that the consumer will end up paying for it all because the prices have gone up. The next round is coming August 30, so we’ll see what happens.”

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Biscay Swivel Lounge Chair.

SunVílla is part of the Yotrio company. Founded in 1992, it is one of the largest Outdoor Living companies in the world. Prior to joining SunVílla, Christy Peterson also worked for Pacific Casual, and Woodard. SunVílla entered the U.S. market in 2014.

Hearth & Home: Could you please explain how you go to market.

Christy Peterson: “Sure. We do have a direct-import program, and we also have three domestic warehouses. Our goal was always to have a little bit of everything in all three warehouses. In the beginning, we had two or three different fabric options to pick from, but when it came to forecasting I would always guess wrong (laughs).”

You’re not alone.

Peterson: “So my perfect world was very foggy. Starting this season for 2019, we decided to go to one fabric. You can still get another Sunbrella fabric on your direct-import product, but we’re only going to store one in our warehouse.”

That’s probably beige, right?

Peterson: “Yes (laughs). Some form of tan or gray or a combination of both. We are now offering a domestic cushion program. For those people who don’t want that beige or gray they can go all out and pick whatever Sunbrella fabric they want, and get something customized. For the domestic cushions, we would expect them to ship within three weeks.”

Do you have many retailers who never buy a container, but rely on quick delivery from your warehouses?

Peterson: “Absolutely. We sure do. Luckily we have those three domestic warehouses to help them so they don’t have to bring in a full container. Some people just will never have the capacity to handle something like that. That is a nice segment of our domestic business. Some people want to try us out and make sure the product is going to retail, so they will buy out of our warehouse for the first season and then switch to containers.”

If memory serves, your warehousing is in California, Texas, and Georgia, right?

Peterson: “That’s correct.”

How well did you do this year in the U.S.?

Peterson: “We did well. We increased business overall by double digits. I was very pleased with how we did. We were a little nervous stepping into Premarket a few weeks ago because we were hearing that a lot of people had some inventory left over. But following the meetings and the talks that we’ve had, we’re feeling pretty strong about 2019. I think we will continue to grow over the next season.”

Are you in Canada to any great extent?

Peterson: “We do some business in Canada. Out of our overall business it is a small portion. I have one rep there. He does a great job, but it’s a huge country and that’s a big territory to cover.”

Like most people, did you find your sales impacted by weather conditions this year?

Peterson: “Absolutely, and we had some worries going into Premarket that there was going to be some inventory left with some of our retailers. But for the most part, they were working through the inventory that they had remaining.”

Which areas of the country were the strongest for you?

Peterson: “Our strongest was Arizona. But our biggest growth this year was the Southeast overall – Florida, Georgia, South Carolina.”

What about online sales?

Peterson: “We do have some online customers. We do have a MAP and we have some customers that have both brick-and-mortar and online. We have some customers that are e-commerce-only. I would say the e-commerce-only are a fairly steady stream of revenue, but I don’t see it as making humongous jumps, at least the way we are currently set up.”

What percent of your business is through the specialty patio channel, and that doesn’t count full-line furniture stores or e-commerce sales?

Peterson: “It is probably 70-75%.”

Have you added a good number of dealers this year?

Peterson: “We really have, and that’s because I’ve added some reps in key territories, Florida being one of them. Some of the more seasoned reps know what it takes to pioneer a line. They are out there every week, traveling and going door-to-door talking about what they are carrying and reminding retailers about their new lines. When you have a good rep like that it definitely shows.”

Do you spend a lot of time on the road, or are you mainly in the office?

Peterson: “I spend a decent amount of time on the road, but I also work closely with our design team and handle a lot of the marketing. I also spend time in China on the product-development side. We’ve got our shows and our ICFA trainings and all of that stuff, so I would like to spend more time with my reps but it gets hard when you’re being pulled away for a few weeks at a time to China.”

Pretend I’m a dealer. I’m not carrying your product. Tell me why I should carry it.

Peterson: “We’ve got two great programs, China and domestic. If you’re buying domestic and I’ve got your chairs in Atlanta and your table in Los Angeles, I’m just going to charge you the closest freight rate. We have a great product offering, transitional, middle price-point, fully woven, high quality, and with Sunbrella fabrics.

“We have a new collection that we’re launching for 2019; it’s fully woven and we’ve never done fully woven before. We’ve done a lot of the mixed materials. Malibu is the name of the collection and it was very well received.”

What trends have you observed that are presently impacting the industry. It could be design, or demographics such as the Millennials finally coming in, or the hot color of the moment.

Peterson: “The fully woven product is one trend, and it does appeal to the Millennials, the younger crowd. The old time scrolly cast look is just a little too dated for that generation. I think that gray is still a big trend out there. We introduced a new aluminum collection in a gray finish this year. Wright Curry, our designer, has been instrumental in trying to give us a little more eclectic look without adding tons of SKUs.

“Here’s something that was great at Premarket. We have a fire pit dining table and we’ve always shown it with the usual dining chairs around it. A customer came in and pulled up a lounge chair to it, and then he said, ‘Let’s put a sofa next to it.’ They are planning to show a fire pit dining table with a sofa, two lounge chairs, and two dining chairs. Then, all of a sudden, we’ve got three options for the consumer.”

That’s a good idea. I see a lot of manufacturers putting, say, a wooden coffee table with a woven group and mixing and matching that way.

Peterson: “That is one of my favorite things. At times, I’ll walk into a retail store and see a floor spot with deep seating, and there are three different tables. They’ve got a coffee table that is one look, and two end tables that are two different looks. Customers want to feel like they’re putting their thumbprint on their design, their outdoor space. Give them the opportunity to think outside the box. Of course, you’ll always want to have the matching occasional table, the dining table to go with your collection. But to be able to offer some opportunities to be more eclectic, I think that’s huge.”

How many new collections do you have this year?

Peterson: “Two new full collections and then we also added some pieces to existing collections.”

What have I not asked that you would like to mention?

Peterson: “I wanted to mention one more thing about fire pits. We have a collection called Laurel; it’s our best-selling collection. Because we know it’s going to retail, we’ve added to it over the years. Last year we added a sectional to it. This year we added some padded sling deep seating. Then we also added a bar-height fire pit. We’re not the only ones to do it. But it just goes to show how important and huge that segment is becoming in our world.

“The interesting thing is we started off with some larger-sized fire pits. We always did a 48- and 54-inch round, and then we would do a rectangular one that was perfect in front of a love seat or a sofa. But I had a couple of reps come to me two years ago and say, ‘We’ve got to have something smaller. The 54 and 48 are just too big.’ So we introduced the 42-inch so it does have that smaller space. There is still plenty of space to put your beer and your glass of wine and a plate of food, but it is definitely smaller. It is outselling those bigger fire pits for us.
“It goes to show that a lot of people just don’t have the space on their deck or patio, but they want to have that experience.”

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Redondo Club Chair.

Wes Stewart started Sunset West in 2006. California has been his base and his strongest area to date. But his march eastward continues. He has reached Florida, and now is beginning a climb up the eastern seaboard.

Hearth & Home: How well did you do in 2018?

Wes Stewart: “In 2017 we knocked the cover off the ball, and so far this year we’re tracking at being 10% up. We tend to stair-step. We will have a big growth year and then we will have slow growth the year following.”

Can you explain your logistics for me? You manufacture in China and then you ship where? Right into your backyard in Vista, California?

Stewart: “We manufacture all the frames in China. We warehouse in Vista where the custom cushions meet up with the frames. So I believe it’s very similar to the NorthCape model.”

Are you selling container loads?

Stewart: “Yes we are. We sell container loads with cushions. We sell container loads without cushions, depending on our customers’ ability to manufacture their own or source cushions locally.”

But you’re not making any cushions in China?

Stewart: “We manufacture cushions in China. Interestingly enough, with the custom cushion capability here in Vista, some of our clients will end up buying half a container with cushions and half a container without, and just order the custom cushions out of the warehouse as they sell off.”

What percent of your business is container shipments?

Stewart: “Oh 5% to 8%.”

That’s all? I would have guessed more.

Stewart: “Yes. It’s not very big.”

While I’m thinking about it, a number of manufacturers are having trouble in California, and that has been going on for more than a few years. I know that’s your backyard, and that is probably your strongest area.

Stewart: “Yes (laughs).”

What? Are you eating their lunch?

Stewart: “Maybe. I don’t know. But it’s very interesting to hear that we’ve impacted the business to that point.”

Well, I didn’t imply that you’re responsible, just that it’s difficult to understand why a state with 40 million people and – usually – pretty good weather isn’t the best market in North America for patio furniture.

Stewart: “In California, we’re house poor. When a regular house is $600,000 or $700,000 that doesn’t leave a whole lot of money for patio furniture. I think we get to a point where other things get in the way, whether it’s going out to eat or driving a car or whatever, but when you’re laying out as much as you are for your house, you don’t have the money to spend on the other nicer things. That’s true indoors and outdoors.

“I have had that conversation since I started in the furniture business, and that goes way back and it’s true. There is not an endless supply of money, believe it or not.”

Unfortunately. What was the strongest area or areas for you?

Stewart: “We are still very, very strong in the Southwest – California, Arizona and Nevada – because it’s close to home base.”

I assume that the Greater Phoenix area is probably a strong market for you.

Stewart: “Phoenix is starting to come along, for sure. We’re starting to make some inroads in Florida, which is nice.”

You’ve got quite a lot of business going through the Internet, don’t you? You’ve got Wayfair and a number of different companies. What percent of your business is online now?

Stewart: “It’s about 15%.”

Well that’s significant.

Stewart: “Yes.”

Are you getting any push back from retailers?

Stewart: “No. I think we have a very fair MAP policy and, surprisingly, part of the Internet exposure has brought retailers on board. Before the Internet existed the retailers were really sitting in the driver’s seat in regards to distribution because customers could either find product through retail stores or they didn’t know your brand existed. With the Internet, virtually any purchase these days begins online. So if you are not online, you don’t exist and customers can’t find out about you.

“In fact, I think that was one of Mallin’s biggest mistakes. They weren’t available online. Nobody knew about them. They didn’t have pricing, so when a customer was starting their research to buy outdoor products you couldn’t find Mallin. It did not exist.”

What percent of your business is through the patio specialty retailers?

Stewart: “I would guess that it is 50% specialty retailer, 15% online, maybe 10% designers, and then the balance would be full-line furniture stores – 25%.”

That’s a very healthy breakdown, isn’t it?

Stewart: “Full line can be a number of things, but it can certainly be an 8,000 to 10,000 sq. ft. showroom where the sales staff is not just order takers, but they actually go out to the client’s home and place product. They are not designers by any means, but they are real consultants.”

I’ve heard from a few manufacturers that the full-line furniture stores want to buy the low-priced product. They don’t want to really hit the top end or anywhere near the top end of the patio furniture business.

Stewart: “I would say the Big Box full-line furniture stores absolutely do that. But more of the lifestyle middle, middle-upper furniture stores that carry better products would certainly buy better goods.”

How many dealers do you have now?

Stewart: “Let me check QuickBooks. The answer is 415.”

You’ve gone from the Southwest to Texas and then to Florida. How far did you get this year?

Stewart: “How far have we made it east? As I said, Florida has really started to catch on for us. We’ve got some guys in South Carolina who are finally starting to make some noise. Unfortunately, we haven’t had a lot of activity in the Mid-Atlantic or the Northeast.”

I’ve had more than one manufacturer tell me that their strongest area was right up the eastern seaboard – all the way up. That’s where the population density really is. The more people the more sales. There is an awful lot of money all the way up. Pretend I’m a patio retailer who has never bought your line. Tell me why I should buy it.

Stewart: “My influence really has been indoor furniture; that’s what I was born into and that was my experience growing up. So our products have a little bit more of an indoor comfort level, which makes our deep seating very, very comfortable to hang out in. The frames are sourced in China and we manufacture our cushions here, so you have a blended value model here.

“Generally speaking, we have a nicer scale than a lot of the other imports at our price point. You get a nice, comfortable, American scale. You get comfortable cushions and you get value pricing because you have an imported frame with domestic cushions; we work with all open Sunbrella fabrics.

“We have collections that work together in color stories. Take, for instance, our Coronado, our Laguna, our Triple Teak, and our Manhattan, pieces from each of those collections can be mixed for your customer’s specific needs. What is really pretty about that is that you get a mix of materials and a mix of textures so that it doesn’t look like your customer went to a patio furniture store and bought the same collection and put the chaises out that matched the deep seating, that matched the bar stools, that matched the dining.

“Now, if that is the customer’s preference, they can certainly do that with our line, but if they aspire to have a bit more of a designer look in their backyard, they can do that with Sunset West.”

All right. Very well done. You’ve sold me.

Stewart: (Laughs). “Thank you. I feel we have a very good value proposition because it’s not just the item, but how that item can be placed and how you can work with a group of items. We’re really getting into this color story thing. For years and years the specialty retailer sold sets. This is my five-piece, wrought-iron set; this is my five-piece aluminum set; this is my five-piece wood set.

“I know that’s how retail customers have acted in the past because that is how manufacturers have merchandised their floors; retailers do follow manufacturers quite a bit. But at the higher end, the more aspirational end, you get these wonderful websites with all these beautiful images. A lot of them are taking products from this collection, and products from that collection, and mixing them up. To me that is much more appealing.”

How many new collections do you have and which one is going to be the winner?

Stewart: “Well, we’re bringing out a new color story (and getting away from the word ‘collection’). We’re bringing out the Frost color story and it is going to have some aluminum in it. It’s going to have some wicker in it. It is going to have some acrylic rope in it. If what I saw in Europe was correct, I think we’re getting ready to see clean white lines being very important to the outdoor retailer.”

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The Lounge Chair from the Urban Retreat Collection.

Like many other manufacturers, Gary McCray is having trouble cracking the 40 million people who call California home. But posting an increase of 20% this year must be some consolation.

Hearth & Home: How well did you do this year?

Gary McCray: “Well, we had a good year. We were up right around 20% over the previous year, so that’s pretty good. Obviously we’re still a growing company, so it’s not like we were established and put another 20 on top of that. We were pretty pleased, and our biggest challenge, keeping up with inventory, was with the groups with which we are doing well. Overall, I think we would have been higher if it hadn’t been for that.”

Which areas of the country were the strongest for you this year?

McCray: “Well, I guess it’s the usual suspects for an East Coast manufacturer and warehouse. Obviously, the Mid-Atlantic was strong, and the Southeast was strong. It kind of wrapped around into Texas. We had our best year in Texas that we’ve had so far. Then it was pretty good in Mississippi, Kansas, Oklahoma, up into the upper Midwest.”

Now are you, like many other manufacturers I’ve spoken with, not doing very well in California?

McCray: “No, we are not. We did have our best year there. We changed representation a little over a year ago and that helped some, but it is still a long way to go before I can say we’re doing much business out there.”

To what would you attribute that problem? It seems that California, with 40 million people, should be the #1 or #2 area of the country for patio furniture.

McCray: “It has just been difficult for us to get a foothold there. I think some of it is that the California manufacturers do a pretty good job of servicing their accounts, and then you have the freight charges right on top of that; it’s challenging. If we did more direct-container business it probably would be better for us as well, and we are trying to develop that. It has just been a little slow coming on for us.

“I think the eastern half of the country is moving a bit more toward having warehousing, and not doing the direct containers and making those commitments. So you’ve got to pick which way you want to go to satisfy one side of the country or the other.”

I haven’t heard anyone put it in those words, and it makes a lot of sense. I did hear from one manufacturer about three months ago. He asked, ‘Have you heard other people saying that the specialty retailers are backing off container purchases?’ I had not, but he was saying that his business, which is all container, was really hurting because of that."

McCray: “I think that is true to some degree. I have talked to various friends that I have around the industry and I get both sides of the story. I’ve heard that on several occasions, and yet at the same time I’ve heard other folks saying that their container business is really what is good for them.

“Obviously, Ashley coming into the business at their price points may be having an impact; they make it so easy to go with those weekly shipments or a couple of times a week shipments, that makes dealers question (the container model).”

Last time you were in the magazine you were talking about starting to work with Wayfair. Where does that stand these days?

McCray: “We’re still working with them. We’re not doing a tremendous amount. We obviously do a lot more on the indoor side. Our struggle there is just to get to their price points and to get volume, and if you don’t get volume with them it’s a lot of work for not a lot of payback. We’re still looking to work with them, but it’s a long road for us just because of the price points.”

Are you working with any other online sellers at this point?

McCray: “We’re starting to work with Amazon, and I think we’re going to face some of the same issues with them. It would not be private label product that we would do with them, but we’re just at the very beginning with them.”

Two years ago you were talking about having 400 dealers. Have you graduated to another lofty level?

McCray: “No. It’s about the same. We’ve added a few and we’ve lost a few. Where we have really improved our business has just been with how we’re working with each dealer. We’re still in that same range of 400, but we’re getting a lot more out of each dealer. We’ve also gotten some bigger and better dealers over the last couple of years. That is where our strength has been.”

How do you and your reps try to boost a retailer up and get him or her to sell more? What’s the secret there?

McCray: “The secret for us the last couple of years, and one of the reasons I’m bringing this up, is first of all having product that will retail for them. You may remember when we first started we were talking good, better, best. After a couple of years I realized that it was growing, but it was really slow, and our effort was in getting more floor placements rather than getting product that retailed.

“We made a conscious decision to try to find things that weren’t out there in the market, and that’s when we started working with synthetic teak – it’s what we call realistic teak now. That really hit home, and then we followed that up with motion. We’re trying to focus on things that give us some differentiation and allows the dealers to differentiate themselves. Then we try to work with them to really sell the features and benefits of those particular products.

“It’s not just having a product that’s a little bit better than X, Y, Z, but that we have something that is different and it offers distinct benefits. To do that we try to do a good job of sales training, but we also are doing more and more in point-of-purchase materials that either explain on the table top or explain in the hang tag more clearly what the difference is and why you should consider this product versus the alternative.”

Basically, what you’re saying is what works is creating something that doesn’t exist, correct?

McCray: “We’re trying. It’s sort of when you hear that or you say that it’s like you’re trying to do something completely different, which in some cases is true. But in other cases you find the feature. I try to work really close with our suppliers and our factories, I ask them to keep me in the loop on anything that comes up, no matter what it is, just for the possibility that one in five of those, or one in two of those, might mean something.”

Well, with my job, I’ve watched these three different industries for years, and I’ve always felt that it’s the innovative products that gain traction. I don’t mean innovative such as creating an iPhone for the first time, not at that level, but just something that is tweaked enough to get people’s interest where no one else really has something quite like it. Are you the first one with power motion, for example?

McCray: “There is motion in the recliners and it has been out there for a while. But the power aspect of it is brand new.”

What percent of your business is through interior furniture stores these days?

McCray: “We’re still pretty evenly split. I think specialty is probably half of our business. Interior is roughly another 40%, and then between Internet and interior designers and other miscellaneous channels would be the last 10% for us.”

How many new collections do you have this year?

McCray: “I would say three major collections that are new. Then we have a variety of other groupings and additions and things like that, but I would say three.”

Which one will be the winner in your eyes?

McCray: “That’s going to be a tough call. I think our Urban Retreat will be the winner overall just because it’s a better price point. But we also did a collection in our synthetic teak called Sierra, which is going to be really good, but I don’t think it will generate quite the buy-in that Urban Retreat will.”

Is there anything else that you want to get out that I haven’t asked you?

McCray: “Well, Mike Gaylord from Agio brought it up. It has to do with getting retailers to preview the new products at an earlier time, preferably in Las Vegas in January. I have my doubts on how successful it will be because the retailers are not going to be in their season yet from the previous buy.

“But somehow we have to get a better read on what the retailers think of the new products, and we have to get their orders in earlier. It’s going to take a joint effort from manufacturers, retailers and the media. Given the length of the supply chain today, and the complexity of the product, this is really needed.

“That to me is one of the real big challenges right now: how to utilize our supply chain and at the same time get enough information to do right by the retailer and get the product on the floor early enough so that they can have a fair shot at having a successful season. All this is based on new product, obviously, but it really carries through on the whole line.”

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Portofino Swivel Glider.

It wasn’t an easy year for Tom Murray. Overall sales were down a bit, working with a logistics firm was trying, and dealing with California is a tough proposition. But, as always, Murray has a smile on.

Hearth & Home: How well did you do in the U.S. this year?

Tom Murray: “Our larger dealer base, which constitutes probably 55 dealers and 500-600 stores, performed well, and that’s where my focus was. Most of the northern guys had a bumpy ride. But our larger dealer base had a double-digit increase.”

Overall, were you up double digits?

Murray: “No. I like to be fair and truthful with this stuff. We had focused on making sure that our larger base grew margins and stayed intact. We did a good job for them and we were successful there. Our original core base, the single-store operators, was a big challenge this year. We are down double-digits with them. For only the second time in our history, we will be off a couple of points in total revenue for the year.”

Obviously the weather impacted everyone once again. In New England, we had one Northeaster every week for four weeks in a row. That has never happened in my lifetime.

Murray: “We still have a strong Northeast, Mid-Atlantic, and Midwest distribution. That is where our core customer base is. Some of the retailers were taking it pretty well, and that surprised me. They would say, ‘We didn’t have a March.’ One of my largest customers is more northern driven, national but more northern, and in March they were threatening cancellations. They had given us big projections. We had product ready to go and they said, ‘Well, we’ve had such a weird start here, we don’t know what we’re going to do, and the CEO doesn’t want all the inventory.’ I said, ‘Well you guys have always taken your projections so let’s just ride it out.’

“Within a month, as soon as the weather broke, they went from threatening cancellations to double-down and saying, ‘Whatever you have available that you can ship right away, send all of it. And we’re going to add another couple of million bucks. Do what you can with it.’”

Are you still pleased with the changes made by your logistics firm two years ago?

Murray: “Some, not all. We got better organized in manufacturing, which was really good. We did get better organized in our warehouse operations, but we have not reached our goal there yet. And we were able to consolidate and get a flexible space in California, but we have run into some permitting problems. The technology they have is great. We are just not utilizing all of it on the logistics side. This year freight throughout the country has been a big challenge. It is not uncommon if freight rates are up 100% versus the previous year in certain lanes. That has put a lot of pressure on any logistics domestically.

“We still learned a lot. It was a good move to move in this direction, but we’re not hitting on all cylinders yet. The area that I thought they would struggle with is where we have actually done the best on the manufacturing side, and some of the things that I thought would be smoothest is where we’ve had some implementation problems.”

Now Mike Gaylord has been pushing dealers to at least begin the process of buying much earlier. He wants them to go to Vegas in January, kick the tires, see what’s there, make comments. He has a point, doesn’t he?

Murray: “Absolutely. It depends on who the dealers are. So we still have people who would love to see us there, and some don’t travel to Chicago, so we’ve got to do virtual shows with salespeople or me, depending on the size and scale. I think the larger dealers that Agio is looking to do business with – they don’t need to be mass merchants – just the larger dealers in the specialty world probably will make the trip as long as there is some incentive.

“The timing, I couldn’t agree with them more. The problem that we see with our largest customers is in January they really don’t know how anything is going to retail. One of the things that we have found is that the best innovations we have with products is after we get the real sale. So we call the wholesale or manufacturing sale kind of a fake sale and how the retailer actually sells it to an end user is the real sale. Because we have had years where we introduced products that would sell very well at the wholesale level, but don’t perform as well at the retail level, and that creates a glut in the system that can affect it.

“So I think the majority of the customer base I serve is still going to want to see what actually retails. I think it’s a neat idea in January to collect the biggest of the big guys that are going to start to work that early because they are out there. And probably use that as product development, finalizing that these are the items that we should really push. But starting to get orders realistically in April, May, and June for the majority of our customer base is what you have to hope for and build around.

“I think they have some larger customers that will help steer them in January and I wish them the best. But who knows, right? You don’t know until you have to do it. But Mike is right, the sooner you start to produce, the fewer delivery problems you’re going to have.”

When we finally hit the Casual Market in September, it’s the last week of the month. That’s way past your deadline, isn’t it?

Murray: “Yes. So, the big deadline for us just happened. We need projections or early-buy orders from 30 to 40% of our customer volume by the end of July. We have got to know what they are doing because we are already producing some stuff that we knew was going to be a rerun and we have to start working on the new stuff. By September we can’t be testing the waters on any product.

“So I think what Mike is trying to do is great and it helps the industry. We all are trying to do the same thing. Get as much of the production out of the way so that we can actually ship on time and take business later in the year versus basically sitting at the Casual Show and saying, ‘You’re too late.’”

The other thing I’m hearing from many manufacturers, and you probably had the same problem, is that California is really tough to sell into these days.

Murray: “We’ve had a lousy run with California this year. I chalked a lot of it up because that part of my business, since we started a facility out there, was strongly driven by in-season work. Meaning these guys would have huge stores but they had very small warehouses. We would always have a later start to the season out in California, and we would get those slower volume orders because dealers didn’t take a lot of stock. It has been different than anywhere else in the country.

“It never got great in California for us this year. I did get David, who is based out there, to send me pictures of his thermometer on his car when he drives home from work; one day in southern California it was 117. So I’m like, ‘Okay, well that’s part of it.’ There is a flight out of California, but maybe you could tell me something I’m not thinking of. What are the other guys saying? What are their thoughts? I have experienced some challenges out there.”

They don’t really know. Nobody has said, “This is the reason why we’re struggling in California.” Everybody but the local natives is struggling.

What percent of your business is online sales?

Murray: “Less than five.”

What percent of your business is through the specialty patio channel?

Murray: “Fifty-five.”

Where does the other 45% come from?

Murray: “Well, 30% of it is what you would define as indoor furniture players, and the rest we would classify as garden centers. There’s a little through e-commerce and a little bit of designer and contract.”

What percent of your dealers are growing their business?

Murray: “I would say 20 to 25% of our specialty base would fall into that category. There’s another 30% that are in tough shape, and a middle group that are doing okay.”

What percent of your business is container?

Murray: “With the container business, we were handling, or double handling, some products through the warehouses. It was not the most efficient way to do it and it was creating capacity problems out there, and it became exaggerated as the season came to a peak. So we have offloaded some of that work and we will go from probably 75% being touched somewhere in the United States at some level to probably 60/40% that will be direct moves from Indonesia, Vietnam and, obviously, China.”

I’m still blown away that 30% is interior furniture stores. You’ve done very well there, haven’t you?

Murray: “Yes. We got lucky. I think we had a good product. Obviously Ashley is creating a problem because they do bring some price points down. They are good at what they do. They have a good infrastructure, but they put pressure on the retailers and they put pressure on some of us that compete in that mid-range price. Typically they are lower; they don’t have Sunbrella, but most of the indoor guys that we have had success with don’t want to be sub-thousand dollar retail price points. They are looking for in the thousands. That range of $1,500 to $3,000, or maybe even $3,500, is my sweet spot.”

What trends have you observed?

Murray: “In the past quick delivery in our space was weak. I think we are down to days and that is not inconsistent with the general retail trend. We don’t have to deliver groceries in New York in five hours or less. If they are going to buy a decent amount, I’m not talking millions. I’m just talking tens of thousands. If they want to make a stock commitment on something, spend more time talking about what the retail is that you want that out at. Are you really going to sell it? You’re going to make your margin. Now let’s figure out what we can fit into that instead of just, ‘Hey, I like that. What’s the price?’ So backing into gaps in the market on their floor using the retail is a trend that is working for us, and I think it seems to be working for the dealers who can take that approach.

“Motion is still a big trend. I’m getting some black weave requests, black frame requests on aluminum more than I have seen in the past. They not only want black weave, but they want it in the family of black, which is actually hard to accomplish to make it look decent. Performance cushions are another area we’re getting a lot of demand on, and that is something we have a value at and a competitive advantage. And then later-season demand, which I think ties into the quick delivery. I don’t think people plan out like they used to. They will wait and then they will want it right away.”

How many new collections do you have for 2019?

Murray: “We have seven completely new collections.”

How many fabrics do you offer on most of your collections?

Murray: “Our Universal program is up to about 40.”

There was one manufacturer who was backing off all this stuff and he said, “About a month ago I bought a car. It was about $60,000. I had roughly 10 choices of color for the exterior, and for the interior they gave me two choices. If they can do it with cars, what the hell are we doing with patio furniture?”

Well, next year when we talk, I hope you have California figured out. What have I not asked that you want to discuss?

Murray: “I’m just trying to make sure that the dealers who don’t know us well, now
understand us a little better. We’ve learned from our mistakes, and we’ve learned from some of these gaps that there is this Universal cushion program, these targeted retail price points mean something, making cushions in this country means something, performance cushions, all these things mean something. I hope that it jumps off the page, or at least, when they come to the showroom, that there is a lot of competition at the $1,200 price point which is where most volume in the country is done.

“There is a lot of competition over $3,000 and what we are trying to do is to fill the gap between $1,499 and $3,500. What we really want from our customers is to tell us what they need, and that’s how we turn it into product development for future projects.”

Now, did you make your goal of 100 retailer visits?

Murray: “I made it to over 100 locations, but I didn’t make it to the complete 100 in the timeframe that I set for myself. But I think I had 85, 86 billing entities, and I probably made it to 200 locations. I didn’t actually count locations because in many cases I was visiting multiple locations from one billing entity.”

I’ve never heard of anyone even coming close to you.

Murray: “Well, that goes back to product development. I can tell you that, from our success being in the stores, talking to the salespeople, even if you have some problems, like something didn’t sell or something shipped late or whatever, you get over that hump and you just start asking the salespeople and the managers and the owners, ‘What’s working? What are people asking for? What’s selling? What would help you sell more of it?’

“These things are by far the best feedback for product development I have ever had in this business, and I’m going to keep doing it. When I get away from it I lose some ground.”

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With an established base in design and hospitality, and showrooms in Chicago, High Point, and Las Vegas, the folks at Kannoa are now opening their arms to the patio specialty retailers.

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2018 July Business Climate

In early August, Hearth & Home faxed a survey to 2,500 specialty retailers of hearth, patio, and barbecue products, asking them to compare July 2018 sales to July 2017. The accompanying charts and selected comments are from the 193 useable returns.

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Parting Shot: Train-Smoking

On the day of this writing, Yucca Valley, California, is at 93 degrees F. Wikipedia tells us that the population is around 21,652, and that the town is 27 miles north of Palm Springs.

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