By Brian Kilcourse, Managing Partner
4/22/08
Conventional wisdom has it that in uncertain times, consumers hold off on discretionary purchases until the better times (hopefully) ahead. One would be hard pressed to find something more easily put off than a new couch or a dining room set, and yet at least to one industry insider, consumers (and the retailers that service them) aren’t going to let tight money prevent them from cheering up the home. In fact, tight money might be the reason they’re doing it.
Karen Olsen is Vice President of Marketing for Merchandise Mart Properties, a 75-year old firm that owns and operates the famous Merchandise Mart in Chicago, the L.A. Mart in Los Angeles, and the Boston Design Center in Boston. These facilities house over 2000 designer showrooms, where manufacturers can show off their latest creations to retail buyers, designers, interior decorators, architects and home builders – “Anyone that is buying or selling home furnishings for residential applications,” says Karen. The company also produces about 350 North American events every year, including the High Point Furniture Market tradeshow event and the Showtime Fabric Fair, both which happen twice annually. Karen’s division puts together the programs for these tradeshows.
According to Karen, floor traffic was up 30% this year at the recent High Point Furniture Market event. Approximately 85,000 people typically attend the entire show, which convened this month in Charlotte, NC, the historic heart of North Carolina’s furniture industry. The primary attendees are retail merchandise buyers. There are about 180 buildings that participate in the Market, but the 30% increase that Karen in referring to was in “her” buildings - the seven buildings that Merchandise Mart Properties owns and operates. This of course is a “big deal,” because those are the very people who might be expected to constrain purchases in reaction to a consumer spending slowdown. Such a jump in attendance might seem counterintuitive, given what’s happening in the U.S. economy. In fact, it’s not getting tough – it’s been tough for home furnishings- for the last 1.5 years.
But things may be changing, according to Karen. “It’s hard for me to assess what happened outside of our buildings,” said the VP, “it could very well be that people were coming to our buildings because we had a lot of new manufacturers launching new products, and there were new and exciting things going on that buyers were very interested in.” Like what? According to the executive, “we could see that a lot of manufacturers were cutting back, laying people off, and so now some very talented people are out in the marketplace starting their own companies and launching innovative new products – and buyers are excited!.” The company also featured a Trend Center at the tradeshow, which according to Karen, “was designed to inspire people to think differently about what was going to inspire consumers to buy home furnishings, and take those ideas back and implement them into their plans going forward.”
From a dour market, the entrepreneurial spirit flourishes. Says the marketer, “color is really big – and that shows that people are really trying to put some excitement back into the industry. They’re trying to bring the depressed attitudes from the economy up a level, and get people excited about the home furnishings industry again. For the last year and a half, it’s been neutral, muted colors – now we’re seeing bright colors everywhere.” According to Karen, with money being tight consumers aren’t going out as often as they used to, and therefore if they have something in their house that helps make them happy, they feel better. “There was one designer that was talking about a bright orange couch that she had just launched, and she said, ‘how can you be sad sitting on an orange couch?’ People were just very upbeat, realistic of course in terms of what’s going on in the economy, but for the first time in a year and a half, very enthusiastic – it was a positive experience for everybody,” said the VP.
We asked Karen if manufacturers are lowering the price points on their product lines, or offering new lower cost product lines to make it easier for consumers to get into the new fashions. “When you go into the luxury lines, those manufacturers are still doing well – the economy hasn’t really affected them because people in their price point can afford to buy furniture. When you get into the lower price points, yes, there are more promotional specials to try to get the price points down.” According to Karen, the general consensus in the industry is that 2009 will be the turnaround year for consumers, and so buyers are thinking now about how to be ready when consumer spending picks up. However, industry insiders are not expecting much of the economic stimulus package approved by President Bush and Congress to flow in their direction this year.
North Carolina was once the home of a booming home furnishings business, but in the last generation towns have seen factory closures and workers permanently displaced as more and more furniture was built offshore. What do the current economic hard times bode for those communities now? “Just this week, there were two announcements of furniture manufacturers that are opening manufacturing facilities in North Carolina,” said Karen. “Part of it is the cost of fuel. For some years, American raw materials have been shipped overseas, turned into furniture, and shipped back to the U.S. The price to do that as fuel costs go up is increasing, not to mention that the quality of products coming back has been very poor, and retailers lose money shipping damaged goods back overseas. And that’s put several large retailers out of business in the last couple of years, such as Rose Furniture, which was one of the top furniture retailers. 30% of the products from China were damaged at Rose. People are looking at those costs, and looking at the increased manufacturing cost in China, and they are finding that it could very well be worthwhile for them to manufacture here in the U.S. again – and we will see more of that.”
In what must be good news for local communities, some manufacturers are re-tooling buildings that had been converted into warehouse space years ago for manufacturing, while others are re-opening old plants that have been shuttered for years.
So, while economists stare at money markets and housing and Washington decision makers stare at macro economic indicators, we have a something new to watch – orange couches with “Made in U.S.A.” labels on them. Frankly, most consumers will find those economic indicators much more fun to pay attention to.
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