Feb. 4, 2021

Confronted with supply chain pressures

Stump & Company
Bo Stump
by
Bo Stump

Originally published in Furniture Today

“Never let a good crisis go to waste” is a famous quote often attributed to Rahm Emmanuel, but in reality it was first said by Winston Churchill (and we assume by many other less-famous individuals in the past).

In the COVID-19 era, we have heard this phrase repeated by many of our clients and friends. The residential furniture sector is growing dramatically as more people are working from home, quarantining at home and generally avoiding going out as we all await the vaccine.

Analysts suggest that residential furniture sales are up 4% to 5%, but many of the larger companies are reporting double-digit growth. And, of course, the e-commerce vendors are registering 30%, 40%, 50% growth. It’s truly an amazing time for home furnishings.

Our friends in the commercial sector are struggling due to office closures and mandates to work from home. Many corporations are providing stipends to employees to “fix up” their home office. These dollars are feeding home furnishings and e-tailers’ pockets.

Several BIFMA companies have shown 30% revenue declines in 2020; therefore, a $13 billion industry may very well now be a $10 billion industry. If those $3 billion of sales flow away from the office into home furnishings, then that provides an 8% to 10% growth to the wholesale residential furniture industry. These are huge numbers and very impactful.

However, supply chains are stretched, and costs are rising. All of this is adding pressure to manufacturers to produce on time and at target margins. We now regularly hear about severe foam allocations, extended lead times on fabric deliveries, lack of availability of ocean containers (and soaring costs), no drivers for domestic trucking operations and escalating packaging/cardboard prices.

In response, we have heard from many CEOs that they have had to raise prices, with additional surcharges also being considered. These headwinds are tending to hit importers the hardest as they have higher costs for containers, in many cases soaring from $3,000 to $4,000 per can to more than $10,000.

Overall, we expect most of these increased costs to be passed along to retailers (and to the consumer).

Consumer demand is high, backlogs are rising due to these supply chain constraints, and CEOs are frantically trying to adjust production schedules to meet demand.

Most believe these pressures will abate by early March. As Confucius once said, “May we live in interesting times!”

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