Jan. 30, 2019

Starting the Year Strong – The Winter Market Lineup

Vegas 2019

Our team kicked off 2019 with a flurry of travel. January’s tradeshow gauntlet was in full force with back to back shows for three consecutive weeks. The Vegas market this week was the highlight. A staggering number of industry CEOs believe this was their best year in Vegas ever. We also made a recent trip to Grand Rapids, Michigan which continues to be a region of significant impact on the furniture industry. Three of the major office/contract players boast headquarters there. A notable trend is that these players are increasingly entering the residential space. There are also impressive new companies cropping up in the Grand Rapids region. We expect to see increased activity emerging from Western Michigan this year.

We spoke with 100+ executives and found that attitudes are upbeat across the board. Executives feel reassured by the stock market’s stabilization, the Fed’s more conservative approach to raising rates, continued strength in the banking sector, the hopeful resolution on the Chinese tariff disputes and an overall strong economy. After a two-quarter pause marked by some unease, all signs seem to point to a strong 2019.

Topics of note and key questions that arose in many of our conversations included:

  • E-Commerce: This continues to be the fastest growing channel in the furniture industry. Amazon, Wayfair and Overstock are dominant. Companies are struggling with which e-commerce platforms fit with their brand, how to manage channel conflict when it comes to price and in some cases how to enter the space at all. “What is your e-commerce strategy? Identifying which companies have strategies you admire, that are successful, is a good place to start.”
  • Trade Shows & Overhead – Many CEOs are growing frustrated with the high fixed costs of operating multiple showrooms in multiple locations for multiple shows at frequent intervals. The majority of showrooms in Atlanta, Dallas, Vegas and High Point are permanent spaces with long leases. That said, markets continue to be an important opportunity to touch customers and prospective customers. Companies appear to be reassessing their market presence, product introduction cadence and whether they have the right balance.
  • Chinese Tariffs - We are almost 6 months into the Trump administration’s levy of a 10% tariff on Chinese goods and threat of 25%. Fear has subsided to some extent though the effects are still felt by many in the industry. Vietnamese companies are benefiting from the desperate search for alternatives to Chinese goods. North American manufacturers are also experiencing a lift in exposure and business.
  • Made in America – North and Central American companies are extremely well positioned in the current climate. Retailers and customers are looking for shorter lead times, high quality and dependable (non-tariff dependent) pricing. Companies that made the bet on Made in North America decades ago are now seeing that decision pay off. Keep an eye on Mexico as NAFTA 2.0 appears to be settled.
  • Winners & Losers – This season has advertised big winners and big losers. The industry has been abuzz with several high-profile bankruptcies and liquidations. This is creating new opportunities. There have also been some stand out new companies with strong growth and profitability profiles that we are eager to see mature (some you have likely never heard of). This season also, overall, seems to still favor the big. Larger companies are better able to invest in technology and the robust HR that makes businesses operate smoothly.

As one industry veteran advised, “Stay low, and quietly eat your 3 bowls of rice.”

The M&A market remains hot with a strong balance of buyers and sellers. The buyers are strategic, international, private equity (seeking both platform and add-ons) and family office – giving sellers some compelling choices. And the sellers are from across industry segments and selling with a variety of objectives in mind – from estate planning to growth capital to strategic purpose.

Do you have acquisition criteria to share? Or aspirations to sell or merge your business? Call us and let us help you navigate this exciting and ever-changing industry.

Reading Recommendations:

* Shadow of the Lions by Christopher Swann – a fun novel mystery set in the modern-day South;

* The Last Castle by Denise Kiernan – the story of the Biltmore House

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