HIGH POINT — Rising costs from both overseas and domestic suppliers and manufacturers have pushed U.S. case goods resources to pass some of those increases along to retailers for finished goods.
It’s a subject many don’t like to talk about publicly nor have to bring up with retailers staunchly opposed to any hint of increased pricing.
But this time around things are different. On one hand, there are rising costs of wood materials such as lumber, MDF and plywood in the U.S. and abroad, sources note. So, too, have labor costs risen in both domestic and overseas factories as manufacturers scramble to find and keep a stable work force.
Such challenges are not new. They have arisen from time to time, forcing many importers and manufactures to share the burden with suppliers and source factories and pass some of that along to their own customers.
Rising freight rates
What complicates things further this time around — and makes the increases nearly non-negotiable — are rising freight rates. Contractual rates have just about gone out the window due to limited container capacity, forcing many to pay as high as three times or more what they paid last year at this time.
Containers now are costing as much as $10,000 a piece or more, compared with anywhere from the low to upper $3,000 range last year. A steady increase heading into the fall months caused some companies to pass along temporary surcharges. Now, some say, that may not be enough given how much the container rates have risen since the fall.
The container rates are also factoring into the prices of shipping finished raw materials such as metal, glass and hardware from China to Vietnam, Malaysia and Indonesia. While these increased container costs are spread over many smaller items, they still add on to the costs of what goes into a finished dresser, bed or dining table.
“I would say that every partner we now have has notified us of an increase,” said Alex Shuford III, CEO of Century Furniture parent Rock House Farm LLC. “And unlike in the past, they seem to be non-negotiable. In the past, it might have been more of a discussion. Now it is like ‘we have to have this, and we have to pass it along;’ there is not a whole lot of notice.”
Shuford said the cost increases are spread across multiple segments, from metal and other raw materials to labor.
“It is not just from overseas factories passing along price increases,” Shuford added. “It is components and labor. It is nearly everything we buy; that is going up at a pace that I haven’t seen in nearly 20 years.”
This is further complicated by the fact that the container availability issue has many factories storing hundreds of, if not more, cartons of finished goods in warehouses — a major cash investment —until those goods can ship.
“Container freight on metal is now double,” Shuford said. “The interconnectivity of the supply chain goes beyond a lot of the source factories that we are buying from. They have their own supply chain that is increasing in costs. The factories are also struggling with cash flow since they get paid when goods ship. Now it might be sitting in their warehouse four, five, six weeks.
“Someone not used to having inventory is now sitting on millions of dollars of inventory, and that’s a problem.”
Due to the cost increases passed along by factories, the company put a 2% to 4% price increase into effect Feb. 1. Some of the increase is due to materials and other cost increase, and some is due to freight, a surcharge the company will remove when the container prices stabilize.
“The surcharge will not be huge, but it makes up the difference from what we saw in September. It was hard to plan for or prevent,” Shuford said. “We are taking it on the chin in a way that is not sustainable.”
‘Hit on all fronts’
Moe Samieian Jr. co-CEO of Moe’s Home Goods, said, “Everyone is coming in with price increases. We are getting hit on all fronts now; it’s non-stop.”
As a result, he said, the company’s new price list published in December includes an average 6% increase depending on the SKU. The increase took effect Jan. 1 and represents a small part of the increased freight costs as of cost levels in early October, but mostly increase costs from overseas factories some of which were in the double digits.
Now as the container pricing has continued to rise, he said the company has been considering whether to a temporary freight surcharge.
Terry McNew, president and CEO of Klaussner Home Furnishings, said the company implemented an average upper single-digit price increase on upholstery and case goods, some of which took effect in December 2020 and some of which took effect Jan. 1
“We did it piece by piece,” he said of the effect on different items in the line, adding that the company has taken steps to control costs such as holding off on pay increases for him and his staff. “And we are still taking a hit to our margin.”
For Klaussner and others, this has been the first price increase in some time. McNew, for example, noted that the last time he was aware the company implemented a price increase was well before he started with the company about 15 months ago.
“It felt like the entire industry was under price deflation,” he said. “Manufacturers appeared to be concerned about increasing costs for fear of losing market share.”
Riverside Furniture President John Iasiello said the 5% across the board increase effective Jan. 1 was the first one it had initiated in three years.
“We have been absorbing stuff. Then you get to a point where you can’t anymore,” he said, noting that the company’s source factories in Asia have documented double-digit price increases including plywood and rubberwood as well as foam for seating. “We just can’t absorb those kinds of increases.”
“We feel 5% was where we needed to be,” Iasiello added. “We just hope we don’t have to take another one.”
Keeping increases to a minimum
AICO said it implemented a price increase in December ranging from 4% to 10%, with different items affected at different levels.
“We simply had to because things have gone up for us triple and quadruple fold,” said Michael Amini, CEO, relating to pressures such as rising labor, materials, manufacturing and freight costs. “We have to pass that along because it will be very difficult for us to absorb the whole thing. A slight price increase is not even a fraction of what we have to absorb.”
Hooker Furniture announced a 5% increase effective Feb. 1. CEO Jeremy Hoff said this is due to mostly materials costs that vary based on supplier. However, the company also is paying higher costs to avoid any disruption in the flow of goods.
Napa Furniture Designs said the 5% increase it passed along in September is the first increase it has had to pass along in its eight-year history. This increase only affects about one-third of the company’s collections, noted Kevin O’Keefe, president and one of four partners in the company.
“We have certainly had price increases from the factory. You see a lot of it because labor rates are going up, and they are paying more for their raw materials,” O’Keefe said. “We are trying to pass along as little of that as we can to our customers.”
Currency fluctuations, including a stronger — or weaker — U.S. dollar, is another factor that impacts factories’ cost of doing business with the U.S. market.
But O’Keefe noted that the company’s Indonesian source factory has done a good job maintaining the cost of finished goods.
“We have a very stable factory, and they try to keep prices the same without raising them,” he said. “They have just been a wonderful partner to us over the years.”
Don Essenberg, president of Legacy Classic Furniture and LC Kids, said that every factory it does business with in Vietnam has taken a price increase on materials, namely wood. Many also have faced increased costs for things like hardware, outsourced carved materials, finishing materials and labor.
“Some of them were (facing increases) in the double digits,” he noted, saying that it, too, has to pass some of that along — in the mid-single digits — effective mid-February for the Legacy and LC Kids line.
“We have absorbed it into our financials, and we are at the point now where we have to take some kind of price increase,” he said.
On the domestic side
The impact is perhaps less for domestic producers as they are not as impacted by the rising cost of containers.
“When you look at those huge shipping costs out of Asia, it actually has made our American-made furniture price out more sharply in comparison,” said Doug Bassett, president of bedroom manufacturer Vaughan-Bassett Furniture Co.
However, Vaughan-Bassett also has faced cost pressures, particularly for wood materials.
“There are increases for lumber in part because the housing market is on fire, and we have seen lumber prices increase,” Bassett said. “The other issue is because of the pandemic: The steps we have had to take in our factory to social distance and protect our workers have increased the costs for us to produce our furniture.”
The company raised prices about 2% on average on Jan. 1, with the biggest impact on solid wood groups that use more lumber. Meanwhile, veneered groups use more plywood and MDF, areas where Bassett said he has not seen significant cost increases.
He added that the introductions that first shipped in the second half were also exempt from the increases.
How this impacts the cost of finished goods depends on the item and the price point. For example, a 4% or 5% price increase for a luxury piece of furniture would likely be much higher than a 10% increase for something priced at lower-middle to even upper-middle price points.
But some say that the price increases could have a silver lining. Not only do they cover the added costs of materials, but also they can result in higher retail margins, which have been hit hard over the years due to industry price deflation.
Amini, of AICO, noted that the challenge has been that prices have been so low for so long that consumers are paying more for everything else but furniture.
“We are doing it to ourselves as an industry,” he said. “I hope we can come together as an industry. We need to understand that we all need to make money. Retailers have to make money; manufacturers have to make money. Otherwise we will destroy ourselves from within. Nothing can be sold without a profit. Basically you are taking away from the quality.”
Adds Samieian, of Moe’s Home Collection, “Yes, demand is good, but if you are not making money selling your product, what’s the point?”