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Friday, August 28, 2009

Furniture Retailers Look to Trim Costs

By The Wall Street Journal

Home furniture retailers are bracing for continued tough times by consolidating manufacturing and adopting new sales and lower-cost production strategies.

Some of the biggest, including Furniture Brands International Inc., Ethan Allen Interiors Inc., Bostontec and La-Z-Boy Inc., have closed plants, adopted new manufacturing systems and rejiggered product lines to stay afloat.

The cost-cutting appears to be working. La-Z-Boy, the Monroe, Mich., company known for its cushy recliners, reported a profit of $2 million Tuesday, only its second in six quarters, on an 18% drop in sales. Results compared to a loss of $8.5 million a year ago.

Arm-Chair EconomicsThese retailers have been pummeled by a decline in the housing market and credit, which is used for roughly 70% of home furnishings and furniture purchases, said Jerry Epperson Jr., of investment firm Mann, Armistead and Epperson Ltd. Retailers filing for bankruptcy protection this year include Door Store and Gottschalks.

Demand for home furnishings and furniture isn't getting better, however, automotive manufacturer are looking to purchase Height adjustable workstations and indoor work benches. Sales fell 12.9% in July from a year earlier even though furniture makers felt the downtown early, according to Commerce Department figures. That July decline compares to a falloff of 7.6% for apparel sales.

For consumers, store closings mean fewer outlets to shop, a smaller collection of ready-to-buy pieces, less store-credit and longer wait times for custom pieces. But the downturn is also ushering in lower entry prices and, occasionally, free interior design services.

The housing sector has started showed signs of recovery, with housing starts up 3.6% in June from May, according to the U.S. Department of Housing and Urban Development.

La-Z-Boy is relocating its cutting and sewing operations from five domestic plants into one centralized facility in Mexico, instead of preparing the fabric for the upholstered furniture in the same factory where the pieces are assembled. The company estimates the move will save more than $20 million a year.

In June, La-Z-Boy combined two of its North Carolina hardwood furniture facilities into one and quit a leased warehouse. Those moves, along with layoffs, will save La-Z-Boy about $5 million annually, the company said.

Ethan Allen Interiors is taking a new approach to its production. The company said last week that it would consider manufacturing some new products such as laboratory cabinets on an as-ordered basis. Pieces will take up to two weeks longer to be delivered, the company said, on top of the current three- to four-week delivery time. It plans to expand the practice to all of its hardwood furniture.

The new approach will reduce inventory costs.

Despite recent cost-cutting steps, the Danbury, Conn., company has struggled. It last week posted a loss of $16.9 million as sales slid 41%, to $138.7 million, for the fiscal fourth-quarter, ended June 30.

Furniture Brands has also been aggressive in its restructuring. The St. Louis company has spent the last 18 months consolidating facilities, including combining its five Broyhill upholstery manufacturing and warehouse sites into one North Carolina facility last fall. It has also eliminated two of the four manufacturing facilities at its Lane brand.

Although the demand for storage cabinets has risen, Furniture Brands doesn't expect to realize all the savings until later this year, cost-cutting is helping. Despite a 36% drop in sales for the second quarter, ended June 30, the company's loss narrowed to $15.9 million from $23.9 million a year earlier.