the buyers happen to pick up a number of stores and a good brand name in the process, they will become formidable competitors. If the domestic companies do not develop marketing skills and the ability to infuse their brands with meaning, they will be wiped out as quickly as Magnavox was silenced by Sony. American retailers and suppliers, large and small, can no longer treat marketing like an unwanted house guest.
Making the Move from Provincial to Global
Historically, American producers considered the export market to be a waste of time and made only token attempts to develop international sales. They had enough domestic business to keep their plants running and the export business was tricky. Americans were not comfortable dealing with currency fluctuations, style and size differences, language issues, oceangoing freight procedures, and cultural idiosyncrasies. They lacked the patience required to build export sales. Likewise, when it came to importing component parts and finished goods, the same indifference was in evidence. They paid lip service to the need to be a global organization and looked for reasons to justify the lack of imports. The easiest culprits were quality and delivery reliability, but in truth, the American factories had their own problems with these issues.
The headlong rush to move production offshore has abated somewhat and it appears that the obituary for the middle man was premature. Most retailers do not have the appetite to go directly to offshore suppliers due to the risks and the overhead required. They prefer to buy from domestic importers. Meanwhile, the Chinese have cooled some of their ardor for furniture production, just as the Taiwanese did in the 1990’s. The cyclical demand, rising labor costs, and pollution concerns have led to widespread plant closings. The Vietnamese and Indonesians have absorbed some of the business, but they are no match for the Chinese.
Staying on top of international economies and political movements, not to mention the constraints our own Congress imposes, requires a sophisticated management team and visionary leadership. Due to the downsizing and offshoring of the last 10 years, the furniture ranks have been depleted, and fresh blood is needed.
Consolidation Strategies Continue to Fail
Michael Porter warned years ago that unless you can change the underlying reasons why some industries are fragmented, efforts to consolidate them will be met with overwhelming resistance. The furniture industry is a poster child for Porter’s observation. Fifty years of consolidation efforts have failed to make a dent in the ranks of players. The underlying reasons for this fragmentation include the lack of economies of scale, heavy design emphasis, fragmented consumer tastes, readily available substitutes, no size advantage, low entry barriers, and weak brand loyalty. Porter says the presence of just one of these factors will block consolidation, yet all seven of them persist in the furniture business. Is it any wonder that the industry remains fragmented?
FURNITURE INDUSTRY WATCH REPORT SEPTEMBER 2009