BDNY Nov 2018 - An Energetic November Market

BDNY - Hospitality Furniture Market Update

We attended the consistently upbeat and high energy BDNY hospitality show in New York this week, one of our favorite markets of the year. The Javits Center format, with small temporary booths and an easily walkable floor, is conducive to getting a lot accomplished in a short period of time. There were some frustrations this year among attendees with the logistics of the conference – 30-minute lines for the coat check, no taxi-stand out front, and a cumbersome check-in where digital badges must be converted to paper. Despite the hiccups, overall attitudes were positive. Conversations focused on the continuing strong growth in hotel construction, refurbishment and room occupancy, as well as the Chinese tariffs.

Quote of the Market #1: “The tariff changes the game, we just don’t know exactly how yet,” shared one senior executive.

As we walked the aisles and spoke with industry CEOs, these were the hot topics:

• Reshoring to the US and Mexico – With tariffs in China forcing a migration to Vietnam and other Asian countries, many producers are looking to return to North America for upholstery production. Now that NAFTA 2.0 is complete, manufacturers have greater confidence investing in the US and Mexico, along with increasing interest in Canadian production. Eastern Europe was also mentioned several times as a low-cost source for quality manufacturing capabilities and capacities.
• Technology: Costs are up globally for labor and raw materials, so robotics and lean techniques are increasingly being used for efficient production. We are hearing more about AI (artificial intelligence) as a tool for furniture production, which will alleviate some of the pressure on labor availability in the coming years. LED lights and embedded speakers are popular features in the design of the products we are seeing.
• Cross-Over of hospitality, residential, & office producers continue – Product continues to blur between different segments of furnishings. Throughout the hall there were exhibitors as well as attendees from other sectors that are invested in or interested in the space.

The merger & acquisition market continues to be strong. In our opinion, it is the best environment since the late 1990s with high buyer interest and an abundance of sellers. Companies should have a strong 6-8 year track record of sales growth and profits (since the 2008-2010 downturn). This performance, combined with the supply of capital from banks, PE firms and corporations has created a perfect economic environment for making deals. This is particularly true in hospitality where the project pipeline fills up months to years in advance.

Quote of the Market #2: “The overall stock market may be a little shaky, but we feel the hospitality sector has strong legs for several years,” said one private equity executive deeply invested in the Hospitality Industry.

Stump & Company has had a very strong run of ‎transactions closed in the Hospitality Sector in the last 15 months, including Brookline – American Leather, Read Windows – Culp, Bryan Ashley – OFS Brands, and D’Style – Kimball, plus several transactions in the residential and commercial spaces. We look forward to several other announcements in the coming months.

Call us if you would like to discuss opportunities in this active climate.