Fall High Point Market - October 2016

Fall High Point Residential Market: A Tale of Two Markets

Amidst the changing fall leaves, the High Point Furniture Market can be summarized as a tale of two markets. We met with 300+ industry CEOs over seven days and heard two very different stories.

• Some cited traffic down by ~20% and discussed with us a tough summer with sluggish sales. This bumpy environment is mirrored by several public companies in our residential furniture manufacturing index that show YTD revenues down 6-10%.
• Others were having the best market in years. A telling anecdote was of one CEO trying to track down a copy machine to print more order forms for customers due to such robust business (and that was on market day 2!). This paralleled several public companies with YTD sales up as much as 11% in one case. Those who seem to be doing best are serving the casual lifestyle retailers, and those who have implemented successful e-commerce strategies.

The internet behemoths, Wayfair and Amazon, were a frequent topic of conversation. Approximately 5% of current furniture sales are through the internet, and this percentage is estimated to continue to dramatically increase over time. However, the difficulty of margin compression, product differentiation, and SKU control will be on-going challenges for companies seeking to take advantage of internet economy opportunities.

During our showroom visits, technology was on full display in many creative ways:

• Virtual Reality Showrooms are providing a new lower cost way to show more product without more floor space. With only a headset, TV screen, and virtual reality glasses, potential customers can experience fully furnished rooms. We found this to be an intriguing idea as companies are seeking new innovative sales tools with reduced overhead.
• Online Floor Planning and Product Customization is fast becoming a reality and standard of excellence. This is a simple and low cost way to test out the ‘look’ of a product before purchasing.   
• Image enhancement for improved compatibility with online sales and e-commerce is becoming a requirement for success online. The ability to zoom, rotate, and better examine the image of a piece of furniture is often the differentiator between a customer’s comfort with a sale or not.

The M&A environment remains open and brisk. The announcement of Lee’s sale to American Leather indicates that the market is indeed open for business. Activity and strengthening of good companies is positive news for the entire industry. The repercussions of this year’s largest acquisition of Home Meridian by Hooker demonstrate the benefits of consolidation. We also see private equity continuing to infuse new cash into the industry, as well as new international players. We expect to see this trend continue.

Quote of the Market: “The market is what it is, the political nonsense is just white noise. Is anyone going to feel more confident about buying a sofa the morning of November 9th, than they do today? I don’t think so.” 

• As it relates to the election, we do believe the NAFTA noise within the political debate is a negative for North American commerce, and our Mexican and Canadian clients are certainly hoping for stability on this front to assure smooth business in the coming years.

 We will attend the BDNY Market in New York, focused on the hospitality sector, in mid-November. We continue to see many residential players enter this market. We look forward to seeing many of you there.

 These are exciting times to be in the industry. Give us a call if you would like to discuss valuation or a transaction in this fast paced and open environment.