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Hearth & Home December 2019

Illustration: ©2019 A.E. Brown.

Cautious Optimists

By Tom Lassiter

If it isn’t the weather, it’s the tariffs, or the competition.


Brian Blakeney – Kingsley Bate
Mark Bottemiller – Ebel
Zac Bryant – Lane Venture
Kate Carret – Seaside Casual
Jerry Epperson – Mann, Armistead & Epperson
Mike Gaylord – Agio
Bill Herren – Woodard
Kathy Juckett – Telescope Casual
Gary McCray – Klaussner Outdoor
Gene Moriarty – Brown Jordan International
Tom Murray – NorthCape
Terri Lee Rogers – OW Lee
Jessica Salisbury – Village Green
Doug Sanicola – Outdoor Elegance
David Schweig – Sunnyland Outdoor Living
Debbie Stegman – Elegant Outdoor Living
Bew White — Summer Classics

Q. What does the casual furniture industry have in common with the stock market?
A. Neither one deals well with uncertainty.

Uncertainty gripped the casual furniture industry throughout much of 2019. The usual worries about bad weather during the crucial spring season were validated by lousy conditions throughout much of the United States; outdoor furniture sales in the early months of this year took a big dive.

The imposition of tariffs on products imported from China added another layer of concern that grew worse as time passed. The usual buying patterns were disrupted as retailers held back, waiting for prices to clarify and settle. The tariff spat with China has led to at least one manufacturer making drastic changes in its Asian manufacturing partners.

Finally, factor in the ongoing evolution in how furniture is marketed and sold to consumers through an ever-expanding array of channels. That process continues to challenge furniture makers, as well as the surviving brick-and-mortar specialty store retailers who initially presented higher-quality patio furniture to the public.

Result: uncertainty. That Pepto-Bismol panic, when you’re not sure what’s going to happen next.

Jessica Salisbury.

The effects rippled through every strata of the industry, from retail storeowners all the way up to furniture company executives. The impact was especially troubling for a seasonal industry whose financial health is dependent on accurately predicting future sales and, in turn, planning and scheduling production. That exercise is difficult enough for goods made on U.S. soil; it is compounded exponentially for goods made in Asia and that must be shipped across the Pacific.

Uncertainty made 2019 the most challenging year since the Great Recession for many in the casual industry.

Jessica Salisbury is CEO and creative director at Village Green in Rockford, Illinois. Her summation of the year in casual was echoed by many of those interviewed by Hearth & Home.

“We ended up being up,” she said about the company’s sales volume. “But I was worried.”

Her outlook for the election year of 2020 also touched on a common theme. “I don’t trust the economics next year,” she said. “I don’t have a good feeling.” Then, reconsidering, she modified her stance. “I’m feeling OK,” she concluded.

The uncertainty in Rockford continues.

Hers is an outlook shared by most of those interviewed. A handful were bullish in their projections for the year ahead; a minority expect sales to decline in 2020. But most expect business to settle down and be OK, perhaps even good. And that, after a year that was unsettling for many, is a welcome prospect.

The Catherine Collection by Kingsley Bate.

Brian Blakeney.

Weather Woes

Much of the nation experienced cold, wet weather during the early spring when homeowners plan their Outdoor Rooms and custom order furniture, expecting delivery in time to enjoy summer to the fullest. The effect on retailers and manufacturers was immediate.

“The spring didn’t do us any favors,” said Mark Bottemiller, National Sales manager for Ebel Inc.

The soggy spring in the Northeast and Midwest and even Southern California stymied retailers’ sales. “They have had two years of absolutely abysmal springs,” says Mike Gaylord, Agio’s vice president of Sales. “It’s been ruthless.” Only the Southeast had decent spring weather, he said.

Brian Blakeney, vice president of Sales and Marketing for Kingsley Bate, exaggerated only a little when he described spring 2019 as “the rainiest in U.S. recorded history.”

Rain washes out casual furniture sales.

“The first quarter was pretty horrendous,” said Gene Moriarty, CEO of Brown Jordan International. Moriarty had predicted sales to be flat or about the same as 2018.

“We had a terrible April and a terrible May,” Salisbury said.

Rain in normally arid Southern California lasted six to eight weeks, said Doug Sanicola, owner of Outdoor Elegance in La Verne.

When the rains finally abated, they were followed in many places by instant summer and searing heat, which also can keep people out of retail stores and smother sales.

Sluggish spring sales caused a ripple effect that resonated back through the sales and production channels, all the way to factory floors.

Retailers didn’t sell through stock on hand as anticipated, and special orders didn’t ramp up until fair weather returned. This one-two punch delayed container reorders, leading to lost time in Asian factories.

Kathy Juckett.

Special orders not placed until mid-summer or later still take six or eight weeks to arrive, meaning the homeowner in northern climes may not get much use from the new furniture until the following year. Retailers risk having orders cancelled when sharing this fact.

Fortunately, the season’s unpredictability began to favor many retailers and sales toward mid-summer. Casual furniture shoppers continued to visit stores and make purchases in greater numbers than usual, even after the July 4 holiday and approach of August.

“Once the season started, it was a different story,” Moriarty said. “We saw strong seasonal demand, and we saw it extend later in the year.”

“July, August and September’s numbers were all record breakers,” Salisbury said. That sales were up with uncomfortably high temperatures was especially unusual.

Telescope Casual Furniture saw sales improve by double digits in residential as well as contract, said CEO Kathy Juckett. After two years of meager growth, the healthy increase was especially welcome. “Telescope had an excellent year,” she said. “We beat expectations.”

Lane Venture had “an outstanding year,” said president Zac Bryant. The company, purchased two years ago by Bassett Furniture, is still rebuilding and “getting our legs back under us,” he said. Sales this year were up by double digits.

Zac Bryant.

Most manufacturers interviewed confirmed that the uptick in summertime sales rolled into autumn. Woodard’s furniture sales during the season were slightly ahead of 2018’s numbers. “We’re still seeing some good things,” said Bill Herren, Woodard’s creative director.

(For purposes of this story, we’re looking at calendar year 2019 while acknowledging that manufacturers generally think of mid-summer and the Preview Show as the launch of a sales year. Complicating matters is how each company defines its fiscal year. Woodard’s fiscal year, for instance, runs from March through February.)

Kate Carret, CEO of Seaside Casual, said sales exceeded 2018 levels by a “lower single-digit number.” However, she was happy with what she described as a slim improvement. She attributed the slight decline in sales in the Northeast to the weather.

Ebel’s sales will probably wind up “maybe a skosh over last year,” Bottemiller said. “It certainly hasn’t been a barnburner.”

Specialty retailer Debbie Stegman, with three Elegant Outdoor Living stores on Florida’s Gulf Coast, reported “a fabulous season.” February’s sales were off, perhaps because of “red tide” conditions that tend to discourage tourism. Once the water cleared, sales resumed at a brisk pace. “We were real clean when we went to Market,” Stegman said. “I have no complaints whatsoever.”

Stegman noted that the economy in her market is strong and that “people are just spending.”

Gary McCray.

No one interviewed, in fact, had any complaints about the state of the economy as it relates to sales. Unemployment continues at record lows, leading to grumbles from retailers as well as manufacturers that jobs making and selling casual furniture are hard to fill.

The fiscal year at Sunnyland Outdoor Living in Dallas ends September 30, said David Schweig, president. The past year was “a decent year” that began poorly in the fall of 2018. “We played catch-up the whole year,” he said.

The economy’s continuing resilience is a concern for some. “We’ve gone through three difficult years on the political front, and yet the economy continues to hang in there,” said Gary McCray, president of Klaussner Outdoor. “How much longer is the American consumer going to carry the economy?”

That’s a particular worry, McCray said, because casual furniture is “a product that you want, but you don’t absolutely need.”

Tariff Impact

The Trump administration’s imposition of tariffs on a long list of goods manufactured in China and imported to the United States caused much of the uncertainty that affected the casual furniture industry in 2019.

Manufacturers had lots of warning about the initial 10% tariff that went into effect January 1. Many were able to absorb the additional cost without passing it along to retailers. Others figured out how to make adjustments that minimized the impact at retail.

Uncertainty about the imposition of additional tariffs increased as the year progressed. Not knowing when and if tariffs might rise (or be removed) made pricing goods for the 2019 sales year extremely difficult.

The contract market was quite wary of the impact of tariffs, which “created uncertainty throughout the entire year,” Moriarty said. Brown Jordan companies, he said, absorbed as much of the additional cost as possible “and tried to figure out how to offset it.”

Agio’s strategy was to deliver as much product as possible before January 1 of this year. That was possible because of the company’s strong dependence on early-buy programs and because Agio does not deal in special orders.

OW Lee traditionally sets its prices for the coming year on October 1. The threatened three-stage tariff on Chinese-made goods, to phase in at different times throughout 2019, made the usual exercise in pricing extra difficult.

Terri Lee Rogers.

“That trickled down to retailers not knowing what to do,” said Terri Lee Rogers, president of OW Lee. “Usually, price increases are easy to deal with,” she said. Not so this year.

Tariffs had no direct impact on Kingsley Bate, which manufactures no products in China, Blakeney said. The company’s sales were on par with 2018’s, “which was our best year on record,” he said.

“The 2019 season was terrible” for NorthCape, said CEO Tom Murray. “We expected it to be terrible,” he said, because of uncertainty about the impact of looming tariffs. “People were hesitant because they didn’t know what they were going to pay, and they didn’t want to be the sucker.”

Murray described the last 18 months as “the hardest in 20 years.” Once the tariff rose to 25%, in-season container orders dried up, he said.

The bright spot in 2019 was that a lot of dealers sold through inventory on hand, and NorthCape drew down much of its inventory in its U.S. warehouses.

But now that the tariff has stabilized at 25%, things are looking up for NorthCape. Early-buy orders for 2020 were up almost 300% over last year, he said. The downside of “a big spike in revenue” from early-buys is the challenge of making and shipping huge quantities of product on time.

NorthCape has taken steps to reduce the impact of tariffs by shifting production of high-volume orders on popular woven products from China to Vietnam.

Tom Murray.

The company began to explore making products in Vietnam five years ago, Murray said. The original plan was to shift about 30% of its production to Vietnam, with the balance remaining in China and Indonesia. He now thinks that as much as 50% of production may come from Vietnam.

Initially, Murray said, the company opted to seek alternatives to Chinese manufacturing because, “China was getting more expensive. Labor shortages were happening. We never planned on patio furniture and the woven category being a big target in a trade war.”

Another factor mitigating the impact of the tariffs is NorthCape’s reliance on U.S. sources for its cushions. Cushions are a major expense, and the impact of the tariff is reduced significantly when cushions are removed from the import equation. “Not every manufacturer that I compete with can do that,” Murray said.

The changing manufacturing environment in China, not necessarily tariffs, led Summer Classics to begin shifting much of its manufacturing business from China to Indonesia. President Bew White said the company is “slowly ramping down” production in China, and that about half of its goods will come out of Indonesia in 2020.

The first containers of Indonesian-made Summer Classics products shipped in October.

White said its existing partner that manufactures teak products, and a second factory that produces goods for the Gabby brand, will take over production previously sourced in China. The factories, he said, “have agreed to spend millions of dollars putting in a finishing system to our specifications, and hiring workers to do what we need. It’s doable. It just takes time.”

The Cyprus Collection by NorthCape.

Looking Ahead

Now that the tariffs on Chinese-made goods have topped out at 25%, the open question is how long they will remain. Herren, of Woodard, thinks the tariffs will be removed to enhance the president’s reelection chances in 2020.

What’s important for the casual industry is that the tariff situation seems to have stabilized, and some degree of certainty has returned, making planning with confidence much easier.

Generally, the casual industry is strong and becoming more diverse. “Everybody’s bullish on the industry,” said McCray.

The casual category continues to “show stronger growth than the industry as a whole,” said Jerry Epperson, a principal with Mann, Armistead & Epperson, an investment banking and corporate advisory firm. He’s considered to be one of the few financial analysts with widely respected expertise in the furniture industry. Epperson notes that the strength of the outdoor category has compelled interior furniture makers, such as Ashley and Bernhardt, to enter the category.

The confidence level in 2020’s prospects, however, varies from person to person and company to company.

The Brown Jordan family of companies is expecting sales of residential products to be strong in 2020. “We’re going into next year feeling pretty confident,” Moriarty says.

Retailer Debbie Stegman is “feeling really good about 2020.” She bases much of her optimism on the strength of her late-year business, which is the start of her season in Florida.

When she operated stores in Ohio before moving to Florida, she said she could always predict the health of the coming year by monitoring fall sales in Florida. A good fall in Florida meant a good year ahead in Ohio. “That’s the way it was every year,” she said.

Schweig expects 2020 to be strong, based on sales trends he observed this fall during the start of Sunnyland’s new fiscal year. October sales doubled those of 2018. Special orders are “the strongest in many years. We are feeling good,” Schweig said.

Murray, at NorthCape, said he is “very upbeat” about 2020 but added, “I’m concerned a little bit about delivery” with the shift of so much production to Vietnam.

Bottemiller said retailer early-buy orders are not coming in at the pace he would like. “We’re fighting for every order we can get,” he said. “Just about everybody is being real slow. There’s some real apprehension about 2020.”

Ebel’s strategy to take the sting out of tariffs was to tighten its belt and adjust prices downward for next year.

“We took a pretty significant price reduction,” Bottemiller said, which should place the company in a good position if the weather and economy cooperate. “Everybody’s on pins and needles, waiting to see how that’s going to play out,” he said.

Mike Gaylord.

Gaylord, at Agio, shares that apprehension. Sales were good in 2019, he said, and played out as anticipated. He’s learned, however, that some retailers didn’t fare as well and have unsold inventory on hand. For that reason, and because of the tariff, he’s expecting 2020’s sales to decline by as much as 15%.

Large early-buys surprised Rogers at OW Lee. They have arrived earlier than usual, she said, “which helps us to have the supplies ready to go.” She’s noticed an up-tick in orders from East Coast retailers, where “people seem to be stepping up a little more and ordering larger stocking orders.”

Those larger orders are important, she said, to make up for the business lost as specialty retailers continue to close their doors. Equally important is developing new channels, such as placing OW Lee products in higher-end interior furnishings stores.

“I hope our specialty guys realize that we are actively trying to replace the business we lose,” Rogers said. “If we don’t, we won’t be around for the specialty guys to buy from us.”

The strength of the economy gives Rogers confidence going into next year. “I’m pretty optimistic,” she said. Good weather next year, “would be like a cherry on top.”

Lane Venture’s Bryant expressed optimism about 2020. He said the recent purchase of Crimson Casual “will give us a huge entrée into the domestically-made aluminum category.” The addition of aluminum to Lane Venture’s core line of high-end synthetic wicker will allow the company to strengthen its position with retailers and designers, as well as with the contract market.

Telescope anticipates “a very good year,” Juckett said. “We expect the economy to stay strong.”

The Charleston Sling Collection from Telescope Casual.

Sales of Telescope’s maintenance-free Marine Grade Polymer (MGP) resin furniture fuel much of the company’s current success. MGP products, which command high-end prices, now account for between 30% to 40% of revenues.

Juckett pointed out that Telescope’s success with MGP is dependent upon retailers who understand the product and are proud to offer it to customers. “They know who they are, and they have confidence in the product line,” Juckett said. “They’re saying, ‘We’re not ashamed to put out this group for $4,000 or $6,000, because we know it’s the best.’”

White of Summer Classics emphasized a similar thought: Specialty retailers must “decide who they are,” he said, and commit to serving the higher-end market if they are to survive (and thrive) in competition with a growing number of channels. It’s no longer possible for a small business to compete on price for lower-end and mid-range outdoor furniture.

Even though manufacturers of higher-end goods have been stressing that message for years, and retailers such as Stegman and Sanicola have proven that the strategy works, there are still non-believers.

“I’m seeing a lot of retailers going down-market because they see it as easier,” Bottemiller said. “Instead of making $1,000 on a sale, they’re making $100. That’s just a road to ruin, isn’t it?”

Bill Herren.

Woodard’s Herren shares confidence in 2020, speculating that, “We should be better than last year. I’m feeling pretty good about it.”

Schweig, who opened a second Sunnyland Outdoor Living store in Frisco, north of Dallas, says he’s expecting 2020 to fare well because of the strong Texas economy. The tornado that tore through Dallas in late October devastated an extremely wealthy neighborhood. As those homeowners rebuild and replace lost furnishings, he expects Sunnyland to capture some of that business.

Strategically, Schweig said, “We have a better grip on tariffs and how to price things. We’re carrying less on the floor, but carrying more depth.”

In California, Sanicola expects 2020 sales to top this year’s, which were slightly off. Big-ticket sales, in the $20,000 to $50,000 range, performed well and as expected this year. But sales to “the everyday customer” declined.

“We bought a lot for next year,” he said, noting that he expects to move more product through Outdoor Elegance’s new online store that will launch after January 1.

“Because I’m a stocking dealer, I’m able to offer better online pricing than Wayfair and Hayneedle,” he said.

Sanicola also plans more events to bring designers into his store and educate them about his products. “I’m going to be teaching them about outdoor,” he said.

The Remy Collection from Ebel.

A major proponent of events, he hosted his fourth ThanksGrilling extravaganza at the store in early November. The event brings in more than 500 people to see equipment and cooking demos, and get a chance to win a Big Green Egg, a Memphis pellet grill, or a Treasure Garden umbrella. The event is free, but Sanicola captures all the contact information for every attendee.

McCray of Klaussner Outdoor says he is “cautiously optimistic” about the prospects for 2020. That optimism is fed by the ongoing entry of newcomers to the category and the introduction of fresh ideas and products. “The manufacturers are continuing to do some really exciting things,” he said. “Everybody is trying to do everything they can to get their share.”

In spite of rampant uncertainty in 2019, the energy and creativity in outdoor lifestyle products keep this industry “pretty much fun at this point in the game,” according to McCray.

That’s a word not heard too much this season, but one worth remembering, Herren said. After all, he noted, “It’s patio furniture. It should be fun.”

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2019 October Business Climate

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