Consumers’ cash flow creates industry concern

Kevin Rademacher

Wednesday, July 27, 2005 | 11:06 a.m.

The U.S. furniture industry is worried about the financial health of consumers.

Jerry Epperson Jr., an industry analyst with Virginia-based Mann, Armistead & Epperson Ltd., told a crowd of store owners, designers and manufacturers that ongoing consumer credit issues will be critical in the months to come.

He pointed out that aggressive mortgage products, such as option adjustable rate mortgages, eventually produce large payment adjustments. Additionally, federal mandates are now in place that will raise minimum credit card payments later this year, and interest rates are eventually expected to rise from long-running historical lows.

"All these things take money out of our consumers' cash flow," Epperson said Tuesday at a gathering of furniture industry professionals at the World Market Center. "We have to respond to this."

Monica D'Antony of Las Vegas is an interior designer turned artist. Her local company -- Belavita Custom Accessories -- sells design accessories through distributors.

She agreed that those in the furniture and design business face hurdles, particularly in markets like Las Vegas where consumers are spending more of their income on mortgage payments.

"They are house poor," she said. "You end up buying more house than you can afford and can't decorate it."

Also looming is competition for marketshare from large national chains that aren't traditionally seen as furniture sellers, such as Wal-Mart, Target and Costco.

"In retail, you've got a lot of new competition," Epperson said. "Americans are finding entire new collections out there."

He said Target alone will debut 15 new product lines in 2005, adding that while 20 years ago only 10 percent of furniture purchased by consumers was bought through non-furniture focused retailers. That percentage has swelled to 30 today.

"Their margins are half what our margins are, and (furniture) is still their best margins," Epperson said. "And they don't have to pay to get traffic in their stores."

Competition for consumer dollars also is coming from outside the furniture industry. Rich Serlin, vice president for sales and marketing for Henderson-based furniture maker APA Marketing Inc. and its subsidiary Encore! Home Entertainment, said the recent run of "employee pricing" sales among automakers has drawn disposable income away from furniture sellers.

"I think that's just sucked some of the wind out of our sails," he said. "We're an industry that likes to copy some of these promotions. That's not one we can copy real well."

Instead, furniture makers, retailers and designers are looking for a niche and packaging that will lure consumers.

D'Antony said one simple step is creating a strong online presence through an Internet site, allowing busy two-income families to shop at their convenience. She also said designers are finding success by partnering with furniture retailers to gain invitations into homes to sell paint, window treatments and accessories.

Epperson said creativity is important in devising successful retail strategies, and pointed to lessons learned in other successful ventures, like the online auction giant eBay. He said some retailers have used in-store auctions on items to attract interest, giving customers the opportunity to make the best bid on a product.

Despite the competition, Epperson reasoned that the possibility of rising interest rates and added scrutiny over aggressive mortgage loans could ultimately benefit furniture retailers. He said many consumers have taken advantage of low mortgage rates and housing appreciation to move frequently.

If the market slows and people are staying in a particular home longer, they could be more interested in a new couch.

"Now, people are going to take the time to decorate this house," he said.