October High Point Market Takeaways

We gathered this week in High Point for the fall market and were met with huge crowds and fantastic weather. In this emerging post-COVID world, we were pleased to see so many people visit, shop, and buy. Attitudes were quite mixed, mostly given the huge change in the global economic picture - namely slower growth, inflation, and rising interest rates.

Our favorite part of the market was the return to town of many legendary former executives who came to meet old friends and relive past stories of the industry. As a renowned former CEO stated, “one furniture story takes about 30 minutes to tell, and always leads to the next story. There is no such thing as a short furniture story!” We were also pleased to see so many international attendees, which has not occurred for over 2 years.

Key discussion topics

Inventory

In 2021, no one could get inventory due to COVID factory closures, scarcity (and price) of ocean containers, and other supply chain challenges. Today, most are over-inventoried as shipments continued to flow in while orders began to slow. Add to this, container rates have plummeted, now returning to levels below the COVID increases. This is forcing companies to curtail freight surcharges and are now dealing with inventory values with the much higher container rates embedded in the cost of goods. We believe it will take 3-6 months for this issue to balance out and return to normal.

Recession or not?

Most feel that the furniture industry has been in a recession since early summer, with reported orders off 30% or so. The high end would dispute this, as they have lived off large backlogs and many are still continuing to enjoy growth in orders, particularly those servicing the designer trade. With public stock prices low and housing starts dwindling, some fear a choppy rest of 2022 and 2023. We remain optimistic that the stock market is correcting back into positive territory, that inflation is being curbed, and that consumers will regain confidence post-election. A big unknown is geo-political tensions amongst key trading partners. We are encouraging our clients to consider a “bridge over COVID” and compare 2019 to 2022 to get a clearer sense of growth without the COVID noise in the middle. Most of the industry is operating well above 2019 levels.

Strong vs Weak

We heard amazing stories of many companies doing well, with growth rates over 40% this year and margins expanding. We also met with many struggling companies that are at a breaking point due to inventory surges, too much debt, lack of capital availability, and general weariness of fighting the battles of the day. We believe there will be many business failures in this next season and that the strong will be opportunistic and acquire assets and people to propel them forward and capture more market share.

M&A Environment

These confluences of factors have created a dynamic M&A environment; we have several deals that will be publicly announced before the end of the year, our backlog is deep, and we are excited about various sectors of the market, including:

• Outdoor/casual sector is seeing continued interest and we believe there is solid growth for suppliers in this category. Our sale of Sunset West to Hooker earlier this year is going well, and the product will look fantastic when Hooker exhibits in Showplace in April 2023.
• E-Commerce is a huge opportunity for our industry, with growth 2-3x the industry average. We represented Noa Home in their sale to Bassett, and we expect to see more e-commerce and DTC transactions in the next few months.
• Domestic upholstery is in high demand, as retailers prefer “made in North American” goods to reduce lead times and dependency on international supply chains. We have several upholstery transactions in the works, at various sizes and price points.
• Real Estate is an important aspect of M&A as companies rethink their global manufacturing and fulfillment footprint. Our sister company, The Stump Corporation, is working with many furniture clients on both buying and selling of industrial property. Check out their listings here.

If you are a buyer, call us, as we have plenty of live-ammo projects. If you are a seller, call us, and let us get to work.