I lived in North Carolina for five years and have since been somewhat fascinated by the furniture industry. North Carolina is to sofas as Michigan is to sedans.
In some ways, furniture seems like cars and other consumer durables. Buying a full bedroom set or a nice sofa and armchair is pretty big purchase both financially and emotionally. Not only will you shell out a lot of money, you will using the thing daily while hoping that you keep it a long time. There is, however, a big difference between cars and furniture. The barriers to entry for the latter are fairly low. It does not take much in terms of capital equipment and investment to get into the business. Admittedly, if your goal is to sell through every Macy’s in the country, that would be different. But if you are content to start small, you can get into the business pretty easily. Hell, I have bought a real sweet upholstered kid-sized living room set on the side of the road in Pittsboro, NC, from a guy who worked out of his garage and whose accent I could barely decipher.
In any event, it’s a tough business with a lot of players scrambling for distribution and trying to create unique products. On top of that, there has been increasing competition from imports as this graph (from an NPR story back in December) makes clear:
What got me thinking about all this is a story in the Wall Street Journal (New Owners Refurbish Battered Ohio Furniture Maker, Aug 20). Norwalk Furniture, an Ohio-based firm, was going bust but got bought out by local investors. How do you make a go of it in such a market? Basically, by offering what the Chinese can’t easily match, customization.
Mr. White says Norwalk Custom’s sales this year will be about $20 million, or one-eighth of the predecessor company’s five years ago. But he says Norwalk Custom should be able to make a modest profit this year because it has stripped away so many costs.
With the weak economy, U.S. furniture makers face growing pressure from imports. The share of imports in U.S. household furniture sales surged to 56% last year from 31% a decade earlier, Mr. Epperson says. So U.S. manufacturers are concentrating on products hard to import.
One of those areas is custom-made upholstered sofas and chairs, allowing consumers to choose fabrics and design options. Consumers usually want those custom sofas delivered within about a month. That would be hard for an Asian factory to achieve, given the two weeks or more it takes for container ships to cross the Pacific.
Norwalk Custom cut costs by reducing the number of fabric choices to about 850 from 2,200 at its predecessor. It prices most of its sofas in a range of about $1,000 to $1,800, the lower end of the custom market.
That last line is kind of interesting. On the one hand, you want to emphasize custom offerings. On the other, you limit the options you offer. This is a balancing act between variety and cost. The numbers I have seen on furniture makers before have firms offering literally millions of SKUs. It’s just not that hard to have huge numbers pop up. If a firm offers ten models of sofas in three sizes with multiple choices of springs and cushions, you are easily into hundreds of choices before considering fabric. The throw in armchairs and ottomans, and you get a very very big product line, the majority of which are not built in any given year.
Fabric seems an obvious place to cut. It is an expensive component and most customer’s eyes will glaze over with several hundred swatches. The question I have is whether this strategy is sustainable. It’s the obvious play for Norwalk but also for pretty much every other mid-sized firm in the US market. For Norwalk to succeed, they either need to be more efficient or faster or more innovative than everyone else. Perhaps their recent restructuring will give them a significant cost advantage but it is clearly a tough assignment.