Florida furniture chains feel the pain
The plummeting housing market, credit crisis and declining consumer confidence have helped to put furniture purchases on the back burner for many homeowners in South Florida and across the country. That’s taken a huge bite out of business for furniture retailers like City Furniture owner Keith Koenig.
After years of riding South Florida’s real estate boom, Koenig and other furniture retailers are paying the price and suffering through the bust.
It’s a dramatic turnaround after more than a decade when Florida’s housing boom fueled one of the most vibrant furniture retail markets in the country. While some trouble started in 2006, the last year has marked the worst slowdown in decades.
Koenig’s Tamarac company, which after his current openings next month will operate 17 City Furniture and 8 Ashley Furniture stores in Florida, saw sales drop last year for the first time since the company started in 1994. The company’s 2007 annual sales came in at $291.1 million, a 15.1 percent decline compared with 2006. And things aren’t looking much better for this year with sales still dropping.
”Consumers buy big-ticket items when they feel confident about the future and feel confident about their ability to pay for those items,” Koenig said. “The customer is more value-oriented than ever. If you don’t have competitive values, this is a time that’s going to expose that weakness.”
Changing consumer shopping behaviors are affecting not just Koenig but the vast majority of his competitors. South Florida-based furniture chains El Dorado, Baer’s and Carls have all seen two years in a row of dramatic same-store sales declines. Baer’s Furniture lost money last year for the first time in the company’s 40-year history in Florida. Even Rooms To Go, the nation’s third-largest furniture retailer, based in Seffner, Fla., last year saw a slight sales drop.
”We had such an incredibly long and vibrant cycle, it’s almost inevitable that the bubble would burst,” said Jeff Seaman, chief executive of Rooms To Go, which has about 50 out of its 130 stores in Florida. “Chances are when we come out of this there will be less stores.”
That fallout has already started. Last year saw a record number of furniture stores filing for bankruptcy, including Bombay Company and Levitz. In Florida, Modernage liquidated all its stores after aggressive price cutting failed to boost business.
Nationally, the Top 100 furniture retailers reported virtually flat sales in 2007, the worst performance since trade publication Furniture Today began tracking the growth 17 years ago. Brand names like Thomasville, Ethan Allen and La-Z-Boy have also seen sales declines and have been starting to close underperforming stores.
`AS BAD AS WE’VE SEEN’
”This is as bad as we’ve seen in postwar times,” said Jerry Epperson, a furniture industry analyst with Mann Armistead & Epperson. “This has been a steady downturn for almost 23 months. The weakness is everywhere in the country, but Florida is definitely at the top of the list. We don’t expect a good year until 2010.”
It’s not that there aren’t people buying furniture, there is just not enough of them. Plus, many buyers are keeping a lid on purchases.
Sofia and Alex Collins only bought a bedroom set for their new vacation condo on Sunny Isles Beach.
”We have a place to sleep, that’s enough for now,” Alex Collins said. “I don’t have money to buy furniture. We don’t need any more today.”
Denise McMillan has already spent more than $20,000 furnishing the new house she bought about a month ago in Miramar. But after the last week’s economic news she put the brakes on some of her spending, scaling back to less expensive area rugs and putting guestroom furniture on hold.
‘I started thinking, `Do I really need to go nutty and buy everything the second I move in,’ ” McMillan said while shopping at El Dorado Furniture with her daughter. “I’m still buying, but I’m not going to fill the house up as fast.”
Yet the economic struggles have done nothing to dissuade Koenig’s long-term confidence in the market’s viability. He’s bullish on the future and is investing behind that optimism at a rapid pace. The company opened its first stores on Florida’s West Coast this summer and by next month will have invested about $33 million to open a total of four City Furniture and Ashley Furniture stores in the Naples and Fort Myers area.
Koenig also has new stores in various stages of expansion in Cutler Bay, Fort Lauderdale and Boca Raton. He’s spending more than $13 million remodeling stores in North Miami Beach, Hialeah and Pinecrest.
”We have total confidence that Florida will continue to grow because there is such a great quality of life and the demographic trends support that,” Koenig said. “We have to continue to invest in our retail stores and have them in the markets that our consumers want us to be in.”
El Dorado Furniture is also moving ahead with expansion plans for a new store in Coconut Creek that will be part of a home furnishings center. The opening is scheduled for next spring.
But other South Florida chains are taking a more conservative view, as they scale back operations and try to ride out this decline.
In the last year, Carls closed stores in Aventura and West Palm Beach. After marketing its entire portfolio for sale in 2007, the company last year sold the real estate for its stores in Stuart and North Palm Beach but is now leasing them back.
To raise more cash and pay down debt, Carls last month sold a major stake in its Carls Patio business to an Ohio-based private equity firm, Weinberg & Bell Group. The private equity firm is also expected to provide capital for expanding the chain, which has stores in Florida and Southern California.
”We wanted to shore up our balance sheet and pay off our debt in full to make sure we were on very solid ground should the downturn continue,” said Jeff Baker, president of Carls Furniture, which is based in Coconut Creek. “We’re going to do everything we can to survive the downturn and be one of the players that is still here in the long run.”
Baer’s decided it could no longer justify operating five stores in Broward County within such a close proximity. The company studied its customer shopping patterns and found that closing some of its smaller, older stores would not affect the distance customers had to travel.
LOOKED AT COSTS
”We looked at our costs and it just made sense,” said Ira Baer, chief financial officer and the third generation to manage the family-owned Baer’s. “We could get a better return on the dollar and we could offer much more to our customers.”
The Pompano Beach-based retailer sold its Davie store in July and until recently had the Dania Beach location up for sale, which opened in 1968 as the company’s first Florida store. But the company took the Dania Beach store off the market recently and is waiting to see if business turns around in the fourth quarter.
Meanwhile, retailers are doing whatever it takes to cut expenses. The South Florida-based furniture retailers have all made major staff reductions, eliminating as many as half their employees, largely through attrition and limited layoffs.
At the same time they’re fighting through sales declines, furniture retailers are also struggling to deal with rising costs. Some stores report manufacturers are raising prices an average of 5 percent and fuel charges are cutting into margins.
Two years ago it used to cost El Dorado about $2,700 to ship a container from Asia to South Florida, but today those costs have almost doubled.
Pedro Capo, chief operating officer of El Dorado Furniture, says the company is forced to pass most of the rising costs onto consumers in order to maintain its profit margin and long-term viability. If the increased price means the furniture doesn’t sell, then the company stops selling the item.
”It’s very challenging,” said Capo, whose same-store sales are down about 20 percent year to date compared to last year. “You want to be competitive, but at the same time you have to make money. We want to be here long-term. We don’t want to take a loss.”
While most of the furniture industry is feeling the pain, there are a few retailers bucking the trend. For instance, IKEA’s first store in the state ”exceeded expectations” during its first year. The advantage for IKEA is that its entire premise is built on providing stylish, affordable furniture and home accessories for the masses.
”The economy is tough, but people are turning to IKEA as an alternative,” said Peter Steinweg, store manager of the Sunrise store, which opened last October. “If we can be this successful during a difficult economic time, who is to say what we can do when the economic times are good.”
But for now, other retailers are being forced to find new ways to lure customers into their stores.
At Carls and Baer’s, management have ramped up aggressive discounting, frequently coming it at 50 percent off. Baer’s even offered an inventory reduction sale this summer with some 75 percent off close-outs, which meant the company took a loss on certain items to move them off the floor and make way for new merchandise.
”If you’re in the market for furniture, it’s a good time to buy,” Ira Baer said. “The deals are better than they’ve ever been.”
Furniture retailers are also offering attractive extended financing so customers can buy now but take advantage of no payments for one year and no-interest financing until 2011 or 2012. Other promotional strategies have run the gamut from free gas cards to cash rebates or spend $1,000 and get $100 in free furniture.
Rooms To Go, City Furniture, El Dorado and Ashley Furniture haven’t resorted to discounting and have stuck by their ”everyday low price” philosophies. But the focus is on promoting merchandise to appeal to budget-conscious shoppers. It’s not unusual to see advertisements featuring a myriad of choices, from sofas to beds, all at $299.
Chains are also bringing in new furniture collections, such as more contemporary styles at Baer’s or a new Cindy Crawford collections at Rooms To Go that lets customers customize their sofa color and style from among a limited selection. At El Dorado, they’ve expanded the selection of leather furniture and added more styles in black and white based on requests.
Oryginal: miamiherald.com
Tags: Ashley, Ethan Allen, Florida, Furniture, Headline News, La-Z-Boy, Miami, Thomasville